Banks snub BSP rediscounting facility in July

Published August 8, 2022, 2:34 PM

by Lee C. Chipongian

The Bangko Sentral ng Pilipinas’ (BSP) peso rediscounting facility had no new releases for the month of July with the total unchanged at P11.6 billion, same as of end June.

The latest end-July peso rediscounting loan was significantly higher compared to same period in 2021 of P5.52 million.

BSP building and logo/Reuters

The BSP said on Monday, Aug. 8, that there was also no availment under the Exporters’ Dollar and Yen Rediscount Facility (EDYRF) from January to July this year. There hasn’t been any EDYRF releases since 2016.

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.

At the beginning of 2022, there were nine big banks or universal and commercial banks, seven thrift banks and 21 rural/cooperative banks with rediscounting lines totaling P227 billion with the BSP.

In July, BSP Governor Felipe M. Medalla said banks are still awash with liquidity and are healthy capital-wise, with enough buffers. He also confirmed that not a single bank applied for financial assistance since the pandemic began in 2020.

The BSP has remedial measures to help solvent banks resolve temporary liquidity problems from “causes beyond their control” such as the pandemic. It extends fully-secured emergency loans to banks as financial assistance.

Based on the BSP Charter, the BSP’s financial assistance to banking institutions is limited to the amount needed by the applicant bank to overcome the emergency or financial predicament but should not exceed 50 percent of its deposits and deposit substitutes. In addition, any emergency advance will be collateralized by government securities and other unencumbered first-class collaterals such as real estate.

The BSP also has the recently launched Rural Bank Strengthening Program (RBSP) which is aimed at assisting small banks hit by the pandemic.

The RBSP will be implemented for three years. It is described as a structured program with four key elements: strengthened capital base; holistic menu of five time-bound tracks; incentives and capacity building interventions; and review and enhancements of existing regulations. These five time-bound tracks are merger and consolidation, acquisition/third party investment, voluntary exit/upgrade of license, capital build-up, and supervisory intervention.

Meantime, the BSP’s loans and advances include rediscounting loans and overdraft credit lines.

Rediscounting as a BSP credit facility allow eligible papers such as credit instruments including promissory notes, drafts or bills of exchange for commercial credits.

Production credits are also allowed which are used for production or processing of agricultural, animal, mineral, or industrial products. Other credits or special credit instruments such as, but not limited to, microfinance, housing loans, services, agricultural loans with long gestation period, and medium and long-term loans are also accepted.

The peso rediscount rates are based on the latest available BSP Overnight Lending Rate plus spread, while the rates for the EYDRF are based on 90-day London Inter-Bank Offered Rate as of July 29, 2022 plus spread.

As of Aug. 9, the peso rediscount rates for 1-90 days are 4.1469 percent and 4.5438 percent for 91-180 days.