The Monetary Board, policy making body of the Bangko Sentral ng Pilipinas (BSP) has come up with a precedent-setting move that allowed banks to have loans to MSMEs eligible as alternative reserves starting today, April 24.

This means bank loans to micro, small and medium enterprises or MSME scan now be included in the amount of reserve that a bank has to place with the BSP, now equivalent to 12 percent of deposits.

The move is unprecedented in scope and signals the government’s thrust to jumpstart the economy zeroing in on the MSMEs which accounted for 60 percent of the country’s exports last year of $70.3 billion.

Economists told The Financial District that the country’s MSMEs were crucial in the export industry linking up with big companies and accounting for over 5 million in employees or more than 60 percent of the workforce.

With the MB move, the banks and non-bank financial institutions with quasi-banking functions, can now aggressively lend to MSMEs, now numbering almost a million, and have these treated as part of their reserve requirements.

The reserve rate requirement, which basically sterilizes a bank’s deposit by having it deposited with the BSP, is aimed at ensuring that the banks have the liquidity buffer should a crisis crop up.

Before, the reserve rate stood at 20 percent and that Philippines had one of the highest rates in the region. It is now at 12 percent after the BSP shed 200 basis points.

The MB said that loans to MSMEs granted last April 15 are already eligible to be treated as alternative reserves which include cash and government securities.

MSMEs are eligible as alternative reserves starting today (April24) until December 2021 at which time they may lose their reserve status.

The MB move seeks a vibrant economy after the projected recession that is seen to hit the country with the Covid 19 pandemic. The MSMEs’ role in economic growth has already been highlighted even by the World Bank.

In a study, the World Bank said that “MSMEs represent a key pillar of the Government of Philippines’ competitiveness and inclusive growth strategy. In pursuit of its ambition to become a prosperous middle-income and knowledge-based economy.

The MSMEs, according to the WB presents a great opportunity for the country to achieve its plan to be a medium-income per capita nation much like Malaysia and South Korea. #coronavirusimpact #COVID19PH

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@2020 by The Financial District