Pursuant to Monetary Board Resolution No. 1162 dated October 11, 1995 in relation to Monetary Board Resolution No. 427 dated April 26, 1995, the provisions of Circular No. 73 issued on May 15, 1995 and effective May 31, 1995 on reserve requirements against peso deposits and deposit substitute liabilities of financial intermediaries are hereby clarified as follows:

I. Reduction in Reserve Requirements and Form of Reserves - The required reserves against peso deposit and/or deposit substitute liabilities of the following financial intermediaries shall be reduced to levels enumerated below:

	Legal Reserve Ratio (%)
	From	To
A. Banks with Expanded Commercial Banking Authority, Commercial Banks (including Land bank of the Philippines, Philippine Amanah Bank and Development Bank of the Philippines
Peso demand and savings deposits, NOW accounts, time deposits and deposit substitute liabilities regardless of maturity	17	15
B. Thrift Banks
1. demand deposits/NOW/accounts/deposit substitutes regardless of maturity	17	15
2. time deposits/negotiable certificates of time deposits (NCTDs)/savings deposits	14	13
C. Rural Banks
1. demand deposits/NOW accounts	17	15
2. savings and time deposits	9	7
D. Non-Bank Financial Intermediaries with Quasi-Banking Functions
Deposit substitutes regardless of maturity	17	15

In addition to the legal reserve ratios, a two percent (2%) liquidity reserve is also imposed against the combined deposit and/or deposit substitute liabilities (of each type of financial intermediary) which may be held in the form of short-term market-yielding government securities purchased directly from the Bangko Sentral ng Pilipinas (BSP). This is pursuant to Circular No. 10, dated December 29, 1993 and the supporting memorandum to all banks and non-banks with quasi-banking functions issued January 10, 1994.

II. Interest Income on Allowed Reserve Deposits with BSP - The allowed reserve deposits with BSP which will earn 4% per annum (based on the average daily balance of said deposits to be credited quarterly) shall be limited to 40% of the reserve requirement (net of short-term market-yielding government securities purchased directly from the BSP) or actual reserve deposits with BSP, whichever is lower.

The following examples may serve as guide in the interpretation of Sections 12 and 13 of Circular No. 73 on the computation of interest income on reserve deposits:

A. Banks with Expanded Commercial Banking Authority/Commercial Banks

Ex. P200.000 total deposit and deposit substitute liabilities distributed as follows:

P50,000 each for demand/NOW, time, savings and deposit substitute liabilities

1. Total required reserves		P34,000
	P200,000 x 15%	P30,000
	plus a maximum 2% of P200,000 which may be in the form of short-term market-yieiding government securities purchased directly from BSP	P  4,000
2. Actual reserve deposits with BSP
	(Note: A minimum proportion of 25% of required reserve for each type of deposit is allowed in the form of balances with BSP).
	25% of P34,000	P  8,500
3. Reserve Deposits with BSP which can earn 4% per annum based on the average daily balance of said deposits to be credited quarterly
	Total reserve requirements	P34,000
	Less: Holdings of short-term market-yielding government securities purchased directly from the BSP	P  4,000
	(Assumed at maximum 2% of P200,000)
	(Note: Actual securities held may be less than the maximum 2% of the combined deposit and deposit substitute liabilities).
	Equals: Reserve requirement net of short-term government securities purchased from BSP	P30,000
	Computation of the allowed reserve deposits with BSP to earn 4% interest
	40% of P30,000	P12,000
	(Note: Maximum proportion of reserve deposits with BSP that can earn 4%)
	Actual reserve deposits with BSP	P  8,500
	Reserve deposits allowed to earn 4%	P  8,500
	Interest income from BSP
	(P8,500 x 4%)                   =	P     340

B. Thrift Banks

Ex. Deposit/Deposit Substitute Liabilities		P100,000
	Demand Deposits/NOW Accounts	P  25,000
	Demand Substitutes	P  25,000
	Time/NCTDs	P  25,000
	Savings Deposits	P  25,000
1. Total required reserves		P  16,000
	Demand: P25,000 x 15%	P    3,750
	Deposit Substitutes: P25,000 x 15%	P    3,750
	Time/NCTDs: P25,000 x 13%	P    3,250
	Savings: P25,000 x 13%	P    3,250
	plus a maximum 2% of P100,000 which may be in the form of short-term market-yielding government securities purchased directly from the BSP	P    2,000
2. Actual (minimum) reserve deposits with BSP (Note: A minimum proportion of 25% of required reserve for each type of deposit is allowed in the form of balances with BSP)
	25% of each corresponding reserve against above liabilities	P    4,000
3. Reserve deposits with BSP which can earn 4% per annum based on the average daily balance of said deposits to be credited quarterly
	Total reserve requirements	P  16,000
	Less: Holdings of short-term market-yielding government securities purchased directly from the BSP	P    2,000
	(Assumed at maximum 2% of P100,000)
	(Note: Actual securities held may be less than the maximum 2% of the combined deposit and deposit substitute liabilities).
	Equals: Reserve requirement net of short-term government securities purchased from BSP	P  14,000
Computation of the allowed reserve deposits with BSP to earn 4% interest
	40% of P14,000	P    5,600
	(Note: Maximum proportion of reserve deposits with BSP that can earn 4%)
	Actual reserve deposits with BSP	P    4,000
	Reserve deposits allowed to earn 4%	P    4,000
	Interest income from BSP (P4,000 x 4%)	P       160

C. Rural Banks

Ex. Deposit Liabilities		P  75,000
	Demand Deposits/NOW Accounts	P  25,000
	Time Deposits	P  25,000
	Savings Deposits	P  25,000
1. Total required reserves		P    8,750
	Demand: P25,000 x 15%	P    3,750
	Time: P25,000 x 7%	P    1,750
	Savings: P25,000 x 7%	P    1,750
	plus a maximum 2% of P75,000 which may be in the form of short-term market-yielding government securities purchased directly from the BSP	P    1,500
2. Actual (minimum reserve deposit with BSP
	(Note: A minimum proportion of 25% of required reserve for each type of deposit is allowed in the form of balances with BSP)
	25% of each corresponding reserve against above liabilities	P2,187.50
3. Reserve deposits with BSP which can earn 4% per annum based on the average daily balance of said deposits to be credited quarterly
	Total reserve requirements	P    8,750
	Less: Holdings of short-term market-yeilding government securities purchased directly from the BSP	P    1,500
	(Assumed at maximum 2% of P75,000)
	(Note: Actual securities held may be less than the maximum 2% of the combined deposit and deposit substitute liabilities)
	Equals: Reserve requirement net of short-term government securities purchased from BSP	P    7,250
Computation of the allowed reserve deposits with BSP to earn 4% interest
	40% of P7,250	P    2,900
	(Note: Maximum proportion of reserve deposits with BSP that can earn 4%)
	Actual reserve deposits with BSP	P2,187.50
	Reserve deposits allowed to earn 4%	P2,187.50
	Interest Income from BSP
	(P2,187.50 x 4%)	P    87.50

D. Non-Bank Financial Intermediaries with Quasi-Banking Functions

Ex. Deposit Substitutes		P200,000
1. Total required reserves		P  34,000
	P200,000 x 15%	P  30,000
	plus a maximum 2% of P200,000 which may be in the form of short-term market-yielding government securities purchased directly from BSP	P    4,000
2. Actual reserve deposits with BSP at least 10% of actual required reserves		P    3,400
3. Reserve deposits with BSP which can earn 4% per annum based on the average daily balance of said deposits to be credited quarterly
	Total reserve requirements	P  34,000
	Less: Holdings of short-term market-yielding government securities purchased directly from the BSP	P    4,000
	(Assumed at maximum 2% of P200,000)
	(Note: Actual securities held may be less than the maximum 2% of the combined deposit and deposit substitute liabilities)
	Equals: Reserve requirement net of short-term government securities purchased from BSP	P  30,000
Computation of the allowed reserve deposits with BSP to earn 4% interest
	40% of P30,000	P  12,000
	(Note: Maximum proportion of reserve deposits with BSP that can earn 4%)
	Actual minimum reserve deposits with BSP	P    3,400
	Reserve deposits allowed to earn 4%	P    3,400
	Interest income from BSP
	(P3,400 x 4%)	P       136

Please be guided accordingly.

Adopted: 10 Nov. 1995

(SGD.) ALBERTO V. REYES
Deputy Governor