Banks can now directly offer government-issued securities and central bank bills in exchange for advances against these securities with the newly-approved discount window facility (DWF) which improves and will replace the existing rediscounting facility.
Based on Bangko Sentral ng Pilipinas (BSP) Circular No. 1202, signed by BSP Governor Eli M. Remolona Jr. on Sept. 24, the DWF will be implemented as BSP’s normal credit operations to influence the volume of credit.
Before the circular, the BSP only rediscounts loans with government securities as additional collateral.
The DWF takes effect two months after publication of the circular.
Meanwhile, the BSP said banks with existing rediscounting line may continue with the rediscounting of eligible credit instruments until they expire. The rediscounting facility operates as a temporary liquidity loan for banks to extend to their clients with eligible papers such as credit instruments including promissory notes, drafts or bills of exchange for commercial credits.
However, banks with existing rediscounting line planning to avail of advances against securities issued by the government and the BSP will have to apply for a DWF line. This will be treated as a new application.
The DWF will cover the following: rediscounting of credit instruments of banks' end-user borrowers; and advances against securities issued by the National Government and the BSP.
This means DWF lines approved under the new circular can be tapped by banks either by rediscounting loans or by offering their government securities and BSP securities for advances, said the BSP, adding that “banks can tap existing rediscounting lines until these lines expire a year after their effectivity, but only for rediscounting loans.”
The DWF will have new credit scores under the Credit Information System or CRIS as well as additional application procedures for the DWF line.
Based on the new circular, the amount of DWF line will depend on a bank’s total credit score under the CRIS guidelines, which ranges from 25 percent to 100 percent of adjusted capital.
The term of the line is one year “unless sooner cancelled, suspended, amended or extended” by the BSP. The line is also renewable annually.
Under the DWF, the BSP will accept the unencumbered marketable debt instruments/securities issued by the government such as treasury bills or bonds with maturities of not more than 10 years from date of advance; and securities issued by the BSP.
The loan value is up to 80 percent of the current market value of the government and BSP securities. The maturity of DWF availments is up 180 days from date of advance, but not beyond the maturity date of the securities.
As to the interest rates, the peso DWF will be based on the BSP overnight lending rate plus a spread depending on the term of the loan as may be determined by the BSP.
For the US dollar and Japanese yen DWF, the interest rates will be based on the applicable benchmark rate plus an appropriate spread depending on the term of the loan. The spread between these two rates may also vary to reflect movements in the market interest rates and to achieve monetary policy objectives, said the BSP.
For the month of September, the current peso rediscounting facility has a reduced rate of 7.4226 percent for the 1-90 day maturity versus its previous rate of 7.5175 percent.
The BSP also cut the rate for the 91 to 180-day tenor to 7.5952 percent from 7.7850 percent in August.
Rediscounting is basically a BSP credit facility extended to qualified banks with active rediscounting lines. The facility helps banks meet their temporary liquidity needs by refinancing the loans they extend to their clients using the eligible papers of its end-user borrowers.