The central bank’s total loans and advances to banks decreased by 46 percent year-on-year during the enhanced community quarantine (ECQ) period.
As of end-May, the Bangko Sentral ng Pilipinas (BSP) only extended P174.38 billion compared to P323.94 billion same time in 2019.
The BSP can give banks discounts, loans and advances when in “precarious financial condition or under serious financial pressures.” But during the most severe lockdown months of March, April and May, the BSP also released a set of regulatory relief measures to banks and non-banks. This resulted in less availments of its loan facilities such as the rediscounting windows.
Loans and advances to the Philippine Deposit Insurance Corp. (PDIC) accounted for a large portion of BSP releases, while the rest are channeled through its loan facilities: rediscounting, emergency loans and overnight clearing line.
Rediscounting releases still remained unchanged at P20.70 billion as of end-July. This amount is lower compared to same time last year of P116.574 billion. There were no availments for rediscounting facility since April.
Rediscounting is a BSP credit facility extended to qualified banks with active rediscounting lines to meet their temporary liquidity needs by refinancing the loans they extend to their clients using the eligible papers of its end-user borrowers.
The BSP has also fixed until September 30 the 2.75 percent term spread on peso rediscounting loans as part of continuing relief measures to banks. This refers to the extension of the reduction of the term spread on peso rediscounting loans relative to the BSP’s overnight lending rate to zero regardless of maturity, from 1-day to 180-days.
A large portion of total loans and advances are with PDIC. These are loans granted since 1993 and include interests and other balances. PDIC handles the assets and liabilities of all banks that were ordered closed by the Monetary Board.
Some of these loans include the P4.59 billion granted to Allied Banking Corp. as the beneficiary bank for the assisted bank, Orient Bank in 1999; the P10 billion loans to BDO Unibank Inc. for First e-Bank in 2002; the P7.2 billion BDO loan to assist United Overseas Bank of the Philippines in 1999; the P1.78 billion loan to Bank of Commerce for Traders Royal Bank in 2002; and the P10.1 billion loan to Export & Industry Bank granted in 2006.
Other BSP-backed PDIC loans were the P1.17 billion to Keppel Monet Bank in 1997; the P7.64 billion to Philippine Bank of Communications in 2004; P1.27 billion loan for Planters Development Bank; P23.9 billion for Philippine National Bank in 2001; P20.5 billion for United Coconut Planters Bank in 2003; and the P3 billion financial assistance to G7 Bank Inc. in 2008.
The BSP can also grant emergency loans or advances to banks – so long as these are not insolvent -- with liquidity problems but these are just temporary remedial measures. Any bank can tap the emergency loan or advance facility during “periods of financial panic” which is a situation that “directly threaten monetary and banking stability” with “extraordinary heavy withdrawals of deposits for successive days”. Banks can also ask the BSP for a loan or advance during normal periods when they have liquidity pressures due to unforseen events.