Philippines central bank to help in loans to small businesses

MANILA: The Philippines central bank has stepped in to encourage banks to lend to small businesses reeling from the economic fallout from the Covid-19 (coronavirus) pandemic.

A new rule allowing banks to count new loans to micro-, small- and medium-scale enterprises as compliance with the reserve requirement is effectively a cut in the reserve ratio, central bank Governor Benjamin Diokno said.

Banks won’t be penalized for depositing to the central bank less than the required reserves as long as the increment goes to new loans to those enterprises.

"It’s a carrot not a stick. It’s voluntary on the part of the bank to help SMEs” and there is "additional incentive” to lend to the small businesses, Diokno said in a text message Sunday. "This rule favors the smaller banks that are presumably closer to the SMEs.”

The loans may be guaranteed by state-owned Philippine Guarantee Corp, under a different program by the national government, the central bank chief said. This new arrangement is time-bound and details will be spelled out in a central bank circular to be issued shortly, he added.

With the country’s main island of Luzon under lockdown since mid-March, the central bank has accelerated its stimulus in recent weeks as the government readies further fiscal support. It lowered its key rate by 50 basis points to 2.75% in an unscheduled move on April 16, bringing this year’s total reduction to 125 basis points.

It also slashed the banks’ reserve requirement ratio by 2 percentage points to 12% earlier this month and has purchased government debt. The new reserve rule was the latest in a slew of relief measures to lenders to help them cope with the coronavirus pandemic.

Other comments by the governor:

The Philippines still has a lot of monetary space, with favorable inflation giving it room to maneuver, Diokno said in an interview with ABS-CBN News Channel on SundayThe value of the peso now is "appropriate,” while currencies of the country’s Southeast Asian neighbors have depreciated significantly, he saidThe central bank is revisiting its forecast 2% growth in overseas workers’ remittances for this year.

"We still have a lot of bullets on our arsenal to help the national government to meet this national calamity,” he told ABS-CBN. - Bloomberg
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