Bangko Sentral maintaining thrift banks’ MLR at 20%

The Bangko Sentral ng Pilipinas (BSP) said Wednesday it is maintaining the thrift banks’ minimum liquidity ratio (MLR) at 20 percent.

“The BSP recognizes the thrift banking industry’s valuable contribution to the country’s economic growth through its lending activities. Nonetheless, the BSP views that maintaining the minimum liquidity ratio [MLR] of 20 percent is appropriate,” the BSP said in a statement.

It said this ensures that covered banks will have an adequate liquid assets to withstand potential stress events, while continuing to meet their clients’ funding needs.

The BSP said the 16 percent MLR during the pandemic is not warranted at present.

“The industry MLR has consistently remained well above the minimum requirement. As of May 2024, the industry has over P35 billion in additional loanable funds. On an individual bank level, the majority of banks report ratios significantly exceeding 20 percent. This demonstrates that the thrift banking industry remains capable of complying with the prudential liquidity requirement while continuing to expand lending,” the BSP said.

It said the MLR is not an additional reserve requirement for thrift banks, as the two serve distinct purposes. The BSP said MLR is a micro-prudential requirement intended to promote banks’ short-term resilience to liquidity shocks, while reserve requirements are employed as a monetary policy tool that aids to manage the volume of domestic liquidity.

“Bank reserves are considered liquid assets under the MLR framework. Thus, the requirements are not additive in nature,” the BSP said.