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Philippine central bank to help provide small business loans

MANILA: The central bank of the Philippines 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 account for new loans to micro, small and medium enterprises as compliance with reserve requirements is in fact a reduction in the reserve ratio, said central bank governor Benjamin Diokno.

Banks will not be penalized for depositing less than reserve requirements at the central bank as long as the increase goes to new loans to these companies.

“It’s a carrot not a stick. It’s voluntary on the part of the bank to help SMEs” and there is “an added incentive” to lend to small businesses, Diokno said in a text message on Sunday. “This rule favors small banks which are likely closer to SMEs.”

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

With the country’s main island, Luzon, closed since mid-March, the central bank has stepped up its stimulus measures in recent weeks as the government prepares new budget support. It cut its policy rate by 50 basis points to 2.75% in an unforeseen move on April 16, bringing this year’s total cut to 125 basis points.

He also cut the banks’ reserve requirement ratio by 2 percentage points to 12% earlier this month and bought government debt. The new standby rule was the latest in a series of measures to help lenders to help them cope with the coronavirus pandemic.

Other comments from the governor:

The Philippines still has plenty of monetary space, with favorable inflation giving it leeway, Diokno said in an interview with ABS-CBN News Channel on Sunday. The value of the peso is now “appropriate”, while the currencies of the country’s Southeast Asian neighbors have depreciated significantly, he said. The central bank is revising its forecast for a 2% growth in foreign worker remittances this year.

“We still have a lot of bullets in our arsenal to help the national government deal with this national calamity,” he told ABS-CBN. – Bloomberg

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