Microfinance loans, which are seen to get a boost from the recent cut on reserve requirement ratio (RRR), may continue to pick up this year as many enterprises seek funding for capital requirements.
The micro, small and medium enterprises (MSMEs), agricultural sector and other community-based businesses are likely to borrow to finance their investments, working capital needs and expansion plans, RCBC Chief Economist Michael L. Ricafort told the BusinessMirror.
“Some of the proceeds may also be used for bridge financing especially for acquisitions and other business investments/expenditures,” he said. Bridge loans are used to cover short-term expenses until a long-term funding is secured.
The latest RRR cut is expected to encourage borrowings from the MSME sector, Ricafort added.
The Bangko Sentral ng Pilipinas (BSP) announced this week that it reduced the RRR for thrift, rural and cooperative banks by 100 basis points (bp) effective July 31. This is seen to release P10 billion of fresh liquidity into the economy.
The Central Bank earlier approved to slash the reserve requirements of universal/commercial banks and non-bank financial institutions with quasi-banking functions by 200 bp as well.
The reserve requirement is the part of the total deposit balance that banks secure in the BSP’s vaults as reserves. Reducing it means banks have more available funds for borrowings.
“The move was in the right direction as BSP continues to funnel more funds to the vulnerable sectors and aid in the recovery,” ING Bank Manila Economist Nicholas Antonio T. Mapa said. “Demand may be another issue, however, but at least monetary authorities continue to help make credit more available by allowing up to P10 billion in funds more accessible.”
Mapa added that the services sector is likely to avail additional loans given that it is one of the hardest hit industries.
Further cut
Ricafort said that it was possible for BSP to further trim the reserve requirement for the thrift and rural banks to encourage more lending activities for the MSME sector, especially those not covered by the bigger banks.
The borrowings would “help alleviate any financial strains largely brought about by the Covid-19 [coronavirus disease 2019] lockdowns/pandemic,” he said.
“The sharp decline in economic activities that may need greater support in terms of further easing of monetary policy would still warrant further cut/s in banks’ RRR, that would further increase banks’ lending activities and also further lower borrowing costs,” he added.
To recall, the Monetary Board has authorized a total cut of 400 bp on banks’ RRR this year.
Mapa, meanwhile, offered a different opinion, saying that the current ratio is already down to 2 percent.
“BSP may want to keep that in place as a prudential measure to ensure survivability for banks in case of periods of stress withdrawals,” he explained.
According to data from the BSP, the Philippine banking system provided P579.1-billion worth of loans to MSMEs last year, which is slightly higher compared to P574.8 billion in 2018.