Philippines to help in loans to small businesses

Bloomberg

The Philippines central bank stepped in to encourage banks to lend to small businesses reeling from the economic fallout from the 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 penalised 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. “This rule favours 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 national government, central bank chief said. This new arrangement is time-bound and details will be spelled out in a central bank circular, 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.