BSP allows MSME loans to count for reserve requirements

The Bangko Sentral ng Pilipinas (BSP) is encouraging more lending to micro, small, and medium-scale enterprises (MSMEs) by allowing loans to these businesses to count towards banks' reserve requirements.

BSP Governor Benjamin E. Diokno stated that this measure aims to reduce the financial burden on MSMEs, which have been severely disrupted by the COVID-19 pandemic.

The Monetary Board, the BSP's policy-making body, is set to release the specific guidelines for this new rule and other related measures.

In addition to encouraging MSME lending, the BSP also recently cut its policy interest rate by 50 basis points to ensure adequate liquidity and lower borrowing costs.

Economist Nicholas Mapa estimates that this initiative could release approximately P360 billion for fresh lending to small businesses.

Mapa further noted that while the BSP is creatively finding ways to stimulate the economy, the effectiveness of these measures depends on credit conditions and the overall economic state.

Prior to this new directive, the BSP had already reduced the reserve requirement ratio by 200 basis points in March, releasing P225 billion in liquidity.

As of the end of 2019, banks' lending to MSMEs fell short of the eight percent mandated by the Magna Carta law for MSMEs.