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Monetary Board Passes Package of Measures to Further Encourage Bank Lending

04.07.1999

"The Monetary Board approved today a package of measures to encourage greater lending by banks. This package includes a one-percentage point reduction in the liquidity reserve requirements of banks effective 16 April 1999 and the relaxation of the application of the present 1.5 percent general loan-loss provision. The 2.0 percent requirement is to be met by October 1999."

"Recent favorable developments such as the decline in the March inflation rate to 8.7 percent and continued stability in the foreign exchange market, and the contraction of net domestic credit in February based on preliminary estimates, allowed the Monetary Board to implement this package of measures. Such positive developments, along with the substantial overperformances of BSP’s operating targets under the stand-by arrangement with the IMF, has provided monetary policy with more flexibility to support the expected recovery in the economy by implementing measures that will encourage lending."

"With the relaxation of the application of the general loan loss provisions, only outstanding loans as of 31 March 1999 shall be required the present 1.5 percent general loan-loss provision. This move by the BSP, which effectively exempts loans granted after the cut-off date of 31 March 1999 from the general loan-loss provision, is expected to improve the profitability of banks and, in turn, induce the propensity of banks to increase lending to the corporate sector."

"All these are expected to reinvigorate the credit operations of the banking system to the corporate sector and eventually bring about a resumption of economic activity".

"The banking system has sufficient loan-loss provisioning from both the specific and the present 1.5 percent general provisioning. With the observed decline in interest rates and gradual improvement in the overall macroeconomic activity, we expect that both non-performing loans and non-performing assets should show some reduction. We foresee no systemic risks in the banking system at present.

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