The Bangko Sentral ng Pilipinas (BSP) has terminated the overdraft credit line (OCL), a liquidity facility, since its function will already be covered by the intraday settlement facility (ISF).

The announcement to cancel the OCL is contained in two separate but related BSP circulars that were approved last Nov. 10, but released on Monday, Nov. 13.

The ISF, which used to be referred to as the intraday liquidity facility or ILF, is part of long-running amendments to the BSP’s peso-denominated real time gross settlement (RTGS) payment system to ensure financial stability and the management of risks.

Based on BSP Circular No. 1180, which was signed by BSP Deputy Governor Mamerto E. Tangonan, the check clearing and settlement regulations were amended by the termination of the OCL because its “limited purpose of addressing overdrafts arising from check clearing losses is covered” by the ISF “that the banks can use not only for the settlement of check clearing results but also for any other local currency real-time gross settlement.”

Meanwhile, BSP Circular No. 1181 which Tangonan also signed as officer-in-charge, amended the ILF and renamed it to ISF as its operation has been automated.

The circular also aligned regulations with legal and statutory requirements as well as made the rules comply with the Principles for Financial Market Infrastructures (PFMI) particularly on credit risk, collateral, liquidity risk and related principles, said the BSP.

Basically, the ISF will make sure that payments smoothly flow through the RTGS payment system and that interdependent settlements are executed in a timely manner to manage systemic risk, said Tangonan in the circular.

The BSP said the ISF allows eligible participants of the peso-denominated real-time cross settlement (RTCS) payment system to obtain funds from the BSP through a sale and repurchase mechanism “to prevent gridlock in the RTCS system due to timing mismatch in the settlement of large-value payments.”

It was exactly a year ago when the BSP first issued the proposed rules on the ILF for eligible participants of the RTGS payment system.

Eligible participants to the ISF are those RTGS participants that owns National Government peso-denominated scripless securities that are free and unencumbered and with remaining maturity of 11 days to 10 years.

The facility may be availed of through the following modes: direct participation for eligible participants that have a direct account with the Bureau of the Treasury’s (BTr) Enhanced National Registry of Scripless Securities (NRoSS); and sponsored participation without a direct account with the BTr’s NRoSS, at which case, ISF transactions of a sponsored participant will be considered as the sponsored participant’s own transactions.

To avail of the ISF, the BSP said a participant may avail itself of the ISF by transferring funds from its ISF account to its SA through the RTCS system in order to fund its queued payments or expected outgoing payment instructions in the RTCS system. The facility may be availed more than once during the same business day the subject securities were transferred and valued, said the BSP.

The BSP will also not impose fees “in order to encourage availment and prompt repurchase of securities by the ISF participants.”

It added that it will “impose no fee if the repurchase is done within the period prescribed by the Bangko Sentral on the same business day the ISF is availed.”

As for extended ISF, this will be subject to a fee at a penal rate equivalent to the overnight lending facility (OLF) rate plus 600 basis points

The RTGS, as defined by the BSP, is a system that provides real time settlement of payments, transfer instructions, or other obligations individually on a transaction-by-transaction basis.

The BSP said the RTGS payment system is “critical” in maintaining price and financial stability, as well as preserving public interest.

The terminated OCL was part of the BSP’s loans and credits. The OCL was made for banks participating directly in the clearing operations of the Philippine Clearing House Corp. to cover shortfalls in the banks’ demand deposit accounts .

However it is limited because the BSP imposes a ceiling on the amount of a bank’s overdraft. The ceiling was equivalent to 15 percent of the bank’s rediscounting line with BSP.