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April 12, 2024

MSME loans fuel businesses and bank reserves

Philippine thrift and rural banks are playing a vital role in supporting micro, small, and medium enterprises (MSMEs).

While the P6.423 billion channeled to MSMEs and some large enterprises by mid-February 2024 is a significant boost for growth, these loans also provide an unexpected benefit: helping the banks meet the Bangko Sentral ng Pilipinas’ (BSP) reserve requirement (RR).

The BSP implemented a program allowing smaller banks to use new or refinanced loans to MSMEs and eligible large enterprises to fulfill their RR obligations.

Since July 2023, this benefit is exclusive to thrift and rural banks. Larger universal and commercial banks are no longer included.

Smaller banks have until December 31, 2025, to leverage outstanding MSME loans for RR compliance, but only until the loans are fully repaid.

Loans that are past due, non-performing, or restructured won’t count towards RR compliance.

The BSP removed the program for larger banks to ease their transition back to traditional RR compliance and manage related costs.

By providing access to financing, these banks are playing a crucial role in driving economic growth. The program also demonstrates the BSP’s focus on fostering a healthy financial ecosystem that benefits both institutions and businesses.