‘Lackluster’ bank lending seen despite RRR cut
Credit to Author: Mayvelin U. Caraballo, TMT| Date: Wed, 30 Oct 2019 18:24:00 +0000
BANK-LENDING growth would remain “lackluster” despite the additional liquidity in the financial system resulting from the recent reduction in lenders’ reserve requirement ratio (RRR), an economist said on Wednesday.
“We may continue to see bank lending [register] lackluster growth despite successive reductions to [the] RRR as cash infusions simply revert to the national government’s coffers,” ING Bank Manila’s senior economist Nicholas Antonio Mapa said in a report.
The RRR is the proportion of current deposits that banks need to keep with the Bangko Sentral ng Pilipinas (BSP) against the sum they can loan out to borrowers.
Mapa said the BSP had been busy reducing reserve requirements as inflation dynamics gave it enough leeway to carry out its broader financial reform agenda.
The report comes after monetary authorities ordered last week another 100-basis-point (bps) cut on the liquidity-mopping tool to trim the RRR for universal/commercial banks from 15 percent to 14 percent, thrift banks from 5 percent to 4 percent and non-bank financial institutions with quasi-banking functions from 15 percent to 14 percent.
This followed a cumulative 300-bp reduction to the ratio so far this year. In 2018, 1-percentage-point cuts were also announced in February and May, totaling to 200 bps.
Although the cuts has so far released P200 billion in additional liquidity in the financial system, Mapa said these “has gone almost exclusively to the local GS (government securities) market with data corroborating this claim with trading volumes spiking right after each RRR infusion.”
Commercial bank-lending growth rates, he added, “have continued to grow, although lacking the pace most would have expected after the deluge of funds.”
Latest Bangko Sentral data showed that while bank lending sustained its expansion in July at 11.1 percent, it was just slightly faster than 10.5 percent a month earlier.
“In short, RRR infusions have done little so far to bolster actual real economic activity with funds diverted back to the Bureau of the Treasury (and eventually the BSP’s Treasury single account) or with the BSP’s overnight windows,” Mapa said.