The Bangko Sentral ng Pilipinas (BSP) has agreed to ease its intraday liquidity facility, allowing banks to redeem locked-up collateral as soon as they have sufficient funds to settle their temporary liquidity assistance.
The BSP said it also approved other enhancements to the facility, including the removal of commitment fees that banks used to pay every time they use the intraday liquidity facility or ILF.
According to BSP governor Amando M. Tetangco, the adjustments would make the facility more flexible, allowing banks to make daily changes to their securities pool as needed.
The ILF is a facility opened by the BSP as a mechanism that would ensure the smooth settlement of interbank transactions.
Tetangco explained that banks participating in the Philippine Payment and Settlement System (PhilPASS) could use the ILF if their demand deposit account with the BSP did not have sufficient balance to complete the transaction.
The BSP provides bank with the cash and the government securities of banks are used to secure the intra-day funds. The securities are held by the BSP for a week if banks have sufficient funds to repay the ILF loan.
According to Tetangco, the BSP has approved an enhancement to the flexibility in changing the securities in the ILF pool. Instead of holding on to the securities for a week, he said the system would be enhanced to accommodate daily adjustments.
Tetangco explained that earmarking securities for a whole week, in effect, limited the banks’ use of the securities. By allowing daily adjustments, he said banks would have more flexibility in taking back their securities as soon as they are able.
Also, Tetangco said banks could avail the ILF only as the need would arise. He said the system would be triggered only if the participating bank did not have enough balance on its account to cover pending payment instructions during the day’s PhilPASS operations.
Tetangco said participating banks and non-bank institutions with quasi-banking functions (NBQBs) with insufficient balances would automatically sell their securities in the ILF pool to the BSP.
Tetangco said the amount of securities to be sold to the BSP out of the ILF pool would correspond to the amount that might be needed to cover any pending payment instruction.
“The BSP would then credit the proceeds of the sale to the respective demand deposit account of the participating bank,” Tetangco said.
Also, Tetangco said the BSP was lifting commitment fee equivalent to 20 basis points computed against the amount made available to the bank under the ILF.
“The bank would only have to pay the regular PhilPASS transaction fee,” he said.