Thrift banks to request lower liquidity ratio

Thrift banks will ask the Bangko Sentral ng Pilipinas (BSP) to lower the minimum liquidity ratio (MLR) for the industry to 16%, as the reserve requirement ratio (RRR) cut takes effect later this month.

“I’m sure they will be open to that. Especially now that we have a 0% [RRR] already. So, let’s see. We will continue to probably request from them (the BSP),” Chamber of Thrift Banks (CTB) President and CARD SME Bank Vice-Chairperson Mary Jane A. Perreras told reporters on the sidelines of the CTB General Membership Meeting on Friday.

Last year the BSP rejected the thrift banking industry’s call to reduce the MLR, saying there was no need. It noted the 20% MLR was “appropriate,” as it ensures that thrift banks “have adequate liquid assets to withstand potential stress events while continuing to meet their clients’ funding needs.”

“During the pandemic it was at 16%. Now they have brought it back to 20%. So hopefully they can bring it back even if little by little,” Ms. Perreras said.

In April 2020, the BSP lowered the MLR for stand-alone thrift banks, rural banks and cooperative banks to 16% from 20% to help these lenders meet clients’ demand for funds during the pandemic.

This regulatory relief measure expired at the end of 2022, bringing the MLR back to 20%.

Ms. Perreras said the BSP could reconsider its earlier stance due to the expected increase in loan volume after the RRR cut takes effect.

The RRR for thrift lenders will be reduced by 100 basis points to 0%, effective March 28. The RRR is the portion of reserves that banks must hold onto to ensure they can meet liabilities in case of sudden withdrawals. When a bank is required to hold a lower reserve ratio, it has more funds to lend to borrowers.

“That (RRR cut) will increase the volume of loans, hopefully. Because there will be more liquidity that will be in the market. And we’re still also hoping that after the RRR is reduced to zero, the MLR could be reduced next,” she said.

Ms. Perreras said a reduction in MLR would further boost lending.

“We’re hoping that maybe that would be next. Because that is much better for us, especially for banks to be able to lend more… I’m sure they have reasons why they are keeping it at 20%. But we hope that they would also reconsider our request,” she said.

Thrift loans

Meanwhile, Ms. Perreras said loans disbursed by thrift banks could hit around P900 billion this year, driven by the RRR cut and increased lending to small businesses and the agriculture sector.

“I think this growth will continue this year. Especially that now, we have a zero-reserve requirement (ratio). So, that loan portfolio, we expect that to be growing because we have more liquidity to do more loans outside,” she said.

In 2024, thrift banks disbursed loans worth P770 billion, Ms. Perreras said in a speech on Friday. This was around 15% higher than the P667.63-billion loans in 2023.

She told reporters that the sector’s net income and assets could grow by 6-7% this year.

However, cybersecurity issues continue to pose a risk for the sector.

“I think most of the banks are experiencing this, but because of the numerous solutions providers that are going to be very helpful for all the banks, not only the big banks but the big and the small banks, I think we will try to really fight this off,” Ms. Perreras said.

The thrift banking industry’s total assets grew by 6% to P1.1 trillion in 2024 from P1.04 trillion in 2023.

“Total capital reached P174 billion up by 10.7% from P157 billion. Capital adequacy ratio (CAR) is a strong 17.88%, very much above the 10% minimum required CAR. Nonperforming loan ratio remained manageable at 6.66%,” Ms. Perreras added.

This year, the CTB is looking at increasing loans for small businesses, as well as agricultural firms, which are typically affected by natural calamities.

“We have a lot of disasters and usually the affected sector is agriculture. So, while we are still working on development and making this a bigger sector. We will also look at the other sectors like the small and medium enterprises,” she said. — Aaron Michael C. Sy