Companies, particularly banks, are urged to tap the capital market by issuing bonds as these are a stable source of funds that can be issued quickly to a large investor base and at a lower cost.
The advantages of issuing bonds to raise fresh funds was raised during the seminar entitled “Philippine Bank: Tapping the Capital Markets” organized by the Capital Markets Development Foundation Inc. (CMDFI) and Philippine Rating Services Corporation (PhilRatings).
CMDFI and BDO Capital & Investment Corporation President Eduardo Francisco said bonds will allow banks to diversify funding with a new type of security, tap long-term funding, and get ESG, Green, or Blue accreditation.
Being exempt from securities under the Securities Regulation Code, he said banks may be able to save on SEC registration fees and credit ratings. Instead of a full-blown prospectus, banks may also prepare an Information Memorandum.
“Due to these reductions in regulatory hurdles, banks are generally expected to benefit from a faster transaction timetable in contrast to regular bond issuers,” Francisco said.
As a recent issuer, Bank of Commerce President Michelangelo Aguilar said bonds allow banks to match long-term assets with long-term liabilities. It also allows banks to lengthen of the tenor of liabilities—including issuances in various tenors to help asset-liability management.
He noted that, issuing bonds can be done quickly and provides access to a wide investor base that includes retail and institutional investors. More importantly, the reserve requirement for bonds is at 3 percent, versus 9.5 percent for deposits, which lowers the cost of funding.
PhilRatings Vice President and Head of Credit Rating for Financial Institutions Lourdes Tabarina said a credit rating is a tool to raise funds, to market and benchmark versus peers, as well as to assess the internal performance of the company.
Investors, regulators and the public may also use credit ratings as a mechanism to evaluate and monitor specific companies or investments.
Meanwhile, Bangko Sentral ng Pilipinas Assistant Governor Johnny Noe Ravalo said having a bank-centric loans market or reliance on bank financing will come at a price.
Thus, one of BSP’s long-term goals is to have a diversified funding source, ensuring that the market will remain liquid even when the banking industry or any other sector is undergoing financial or economic challenges.
He also noted that Philippine corporate bonds are predominantly issued by top-notch companies, most of which have the highest PRS Aaa rating—this is a very limited market given that 99.59 percent of the country’s business establishments are micro, small, and medium enterprises (MSME).
As such, the BSP encourages the participation of other businesses and institutions in the bond market.