The Bankers Association of the Philippines (BAP) said it supports the Bangko Sentral ng Pilipinas’ (BAP) move to enhance benchmarks and establish a credible yield curve for price and rate transparency and to improve liquidity.
“We will continue to work actively with the regulators to ascertain that any foreseeable benchmark implementation undergoes system-wide testing, accreditation, and general acceptance by all market stakeholders,” BAP said in a statement on Thursday, June 22.
The 44-member BAP said they will accept a yield curve that is based on actively traded, high-volume securities’ transactions.
“Compared to other markets in the region, the Philippines still strives to have a deeper and more vibrant securities market. Presently, we have the 5-year, 7-year and 10-year securities actively traded in the market — with the 12-year, 15-year, and 20-year bonds receiving strong interests from market participants and investors," said BAP.
It added that, "These securities provide the banking industry sufficient support for pricing bank products such as loans, mortgages, investments, and marking-to-market of banks' own portfolios."
The BAP currently administers the domestic market’s Bloomberg Valuation or its pricing evaluation service known as BVAL.
The BAP said that, as a licensed administrator by the Securities and Exchange Commission (SEC), the Philippine BVAL benchmarks are credible despite its limited market activity.
Amid BSP’s initiatives to create an overnight (ON) benchmark as part of establishing a credible yield curve, BAP pointed out that BVAL as a benchmark is accepted by the financial and capital market here.
BAP said the market continue to have confidence in the use of BVAL. This is because of “rigorous back-testing” and its “straight through processing (which is) a critical element to deliver efficient and convenient services to bank customers.”
It said BVAL is compliant with the International Organization of Securities Commissions principles for financial benchmarks. “(It is also) accepted by the Philippine board of accounting professionals, and supported by regulatory issuances” from the BSP and the SEC.
The BAP said it “shares the view of the Bangko Sentral ng Pilipinas that, as a market, we desire to have a yield curve based on actively traded securities that result in high-volume transactions in the market.”
The BSP announced on June 21 that it will create a new ON reference rate that will be generated by translating the 28-day BSP bill rate to its ON equivalent. This will be implemented on or before June 30, when the global markets will stop using the London Interbank Offered Rate (LIBOR).
BSP Governor Felipe M. Medalla said the BSP will be working closely with the market to have a credible yield curve by January next year.
The BSP and market participants such as banks have a long journey ahead in establishing a credible yield curve to guide money market prices which will affect stocks and bonds.
Since December 2021, the BSP has required all banks to submit quarterly reports of their remaining LIBOR-related exposures until the end of 2023. This was part of the BSP and banks’ LIBOR transition plan.
LIBOR, which will expire on June 30, 2024 after several deadline extensions, was used by local banks as a reference rate for its foreign currency-denominated transactions such as corporate and consumer loans, bank deposits, fixed income securities, interest rate swaps and cross currency swaps.