MANILA, Philippines – Small and medium-sized banks will be able to use up more of their funds and offer more loans to consumers, as the Bangko Sentral ng Pilipinas (BSP) slashed the reserve requirement ratio (RRR).

The RRR for medium-sized banks, or the amount banks need to hold in their reserves, will be slashed to 6% from the current 8%. It will be brought down in 3 tranches, similar to the schedule for universal and commercial banks.

BSP Governor Benjamin Diokno said on Thursday, May 23, that the first tranche will be a cut of 100 basis points on May 31. This will be followed by 50 basis points each on June 28 and July 26.

Likewise, the RRR for small-sized rural and cooperative banks will be reduced by 100 basis points to 4% from the current 5% on May 31.

Rizal Commercial Banking Corporation economist Michael Ricafort said every 1% cut in the RRR adds some P9.3 billion in liquidity for thrift banks and P1.8 billion for rural and cooperative banks.

With medium banks getting a 2% cut and 1% for rural and cooperative banks, at least P20 billion is expected to be infused into the economy.

Earlier in May, the central bank announced that it will slash the RRR for big banks by 200 basis points in 3 tranches. This move, analysts estimate, would free up almost P200 billion in the economy. – Rappler.com