The policy could potentially inject an estimated P400 billion into the local financial system based on the central bank’s tally of P20 trillion in total deposits in the Philippine banking system, providing banks with more funds for lending and investment.
The reserve requirement is the portion of banks’ deposits that are not allowed to be lent out and must be kept as cash or in liquid investments. The latest BSP policy brings the reserve requirement down to 5 percent of total deposits for large banks — still one of the highest in the region.
Other type of banks
The central bank also lowered reserve requirements by 150 basis points for digital banks and 100 basis points for thrift banks, bringing their reserve requirements down to 2.5 percent and zero, respectively.
The policy covers local currency deposits and deposit substitutes held by banks and non-bank financial institutions.
The BSP emphasized that the reduction aligns with its long-term goal of enhancing financial intermediation by allowing banks to channel more funds toward loans and investments.
The added liquidity is expected to lower borrowing costs, support business expansion, and stimulate economic growth.
Last reserve cut
The last BSP-mandated reserve requirement reduction happened in September 2024 when the central bank cut reserve requirement ratios by 250 basis points for universal and commercial banks and non-bank financial institutions with quasi-banking functions; 200 basis points for digital banks, and 100 basis points for thrift, rural, and cooperative banks.
Senior Reporter
