Lowering of reserve requirements for financial institutions may reduce rates

Since September 11, financial institutions will be able to access up to an additional $6 trillion of savings account depositscurrents, CDT and other collections made by its clients, after the reduction of the reserves (resources that must be frozen in the entity of their collections) ordered by the Bank of the Republic.

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The issuer lowered by one percentage point the reserve requirement on products whose current percentage is 8%, such as current accounts and savings accounts, mainly, and those that are at 3.5%, such as CDTs of less than 18 months.

For Andrés Giraldo, professor of economics at the Universidad Javeriana, says that the measure will generate more resources to lend, so It is a reactivation strategy which was supposed to be the result of the meeting between bankers and the government last week.

“When the policy was contractionary, the increase in reserve requirements was used to reduce credit. Now that it is expansionary, the reduction is in line with the rate cut by the Bank of the Republic.”
“Reducing bank reserve requirements allows for more funds to offer loans to customers and may allow interest rates on loans to be lowered. In addition, reducing reserve requirements improves banks’ liquidity, providing them with more money available to manage their daily operations.”considered Andrés Duarte, financial analysis manager at Corficolombiana.

But not only could the rate on loans be relaxed, but also on deposits.

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Arnoldo Casas, investment director of Credicorp Capital said that the measure seeks to boost credit, “But what happens immediately is that it generates liquidity for the banks in that proportion, it takes away that pressure on that amount in the deposits, so it lowers the deposit rate, but in the end, by way of the margin, it should lower the placement rate.”

Jackeline Piraján, an economist at Scotiabank Colpatria, says that Banks will have greater availability of funds to offer to the credit marketwhich generates offering lower interest rates on its fundraising, that is, paying less for new deposits, such as CDT, which can result in a gradual reduction of rates in line with the reduction of the Colombian Issuer’s interest.

HOLMAN RODRIGUEZ MARTINEZ
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