J.P. Morgan Views Post The Philippines RRR Cut

J.P. Morgan updates its views post the BSP's RRR announced late yesterday. It doesn't see the move as a shift in the monetary policy stance. The RRR cut should aid Philippine banks.

"RRR cut is an operation adjustment, not an easing in monetary policy stance. The pause in monetary policy action last month we noted could open the door for an operational move in the form of a reduction in the RRR in the coming months. The RRR in the Philippines today is the highest in the ASEAN region at 12% for larger banks. The timing of which we had thought could come as soon as the expiration of the COVID-19 policy measure, which permits loans to micro-, small, and medium enterprises (MSMEs) to be counted as part of banks’ compliance with reserve requirements, on June 30."

"Liquidity operation in focus. In the statement today, the BSP emphasized that the move is an operational adjustment to move towards a more flexible liquidity management. The RRR cut is expected to release Php107 bn, or 0.78% of GDP, of liquidity into the banking system. However, the BSP will be offering 56-day BSP bills on the same day (June 30) to absorb the additional system liquidity."

"Positive for Philippine banks. While the cut is expected, the quantum (250bps) is slightly larger than initial guidance of 200bps. At system level, the incremental Php107 bn (78bps) of deposits released for universal and commercial banks adds ~3bps to NIM and ~1.5% to EPS on a full-year basis, in our estimate."