Banks actively tap rediscount loans, availments reach record P30.6 billion

MANILA, Philippines — Rediscount loans extended to local banks to finance the expansion needs of businesses and households hit a record P30.6 billion in the first nine months amid the series of interest rate hikes by the Bangko Sentral ng Pilipinas (BSP) to check rising inflation.

The amount was more than 30 times the P603 million extended from January to September last year.

Bulk of the total amount disbursed under the peso rediscount facility in the first nine months went to other credits, while 25 percent went to commercial credits.

Majority of the loans of other credits include other services with 30.9 percent, capital asset expenditures (28.2 percent) and permanent working capital (15.78 percent).

 There was no availment under the Exporters Dollar and Rediscount Facility (EDYRF) from January to April this year.

Rediscounting is a privilege of a qualified bank to obtain loans or advances from the BSP using the eligible papers of its borrowers as collaterals. It is a standing credit facility provided by the central bank to help banks liquefy their position by refinancing the loans they extend to their clients.

The BSP earlier raised the rediscount rates for loans under the peso rediscount facility to 5.0625 percent from 4.5625 percent for loans with maturity of up to 90 days and to 5.1250 percent from 4.6250 percent for loans with maturity of up to 180 days.

Last Sept. 27, the BSP’s Monetary Board delivered its first back-to-back 50-basis point rate hikes to anchor rising inflationary expectations since shifting to the inflation targeting framework in 2001, bringing to 150 basis points the cumulative increase in interest rates so far this year.

It first raised interest rates by 25 basis points for the first time in more than three years last May 10 followed by another 25 basis points on June 20, 50 basis points – the biggest in 10 years – last Aug. 9, and 50 basis points last Sept. 27.

The overnight reverse repurchase rate currently stands at 4.5 percent, the overnight deposit and overnight lending rates at four percent and five percent, respectively.

The BSP’s Monetary Board adopted a unified rediscounting window for all types of banks in June 2017 as it decided to terminate the sunset provision for small banks.

The central bank approved the removal of the sunset period of five years for thrift banks and 10 years for rural and cooperative banks in accessing the BSP’s peso rediscount facilities.

Based on statistical data, the regulator said thrift, rural, and cooperative banks are no longer dependent on BSP funds thereby warranting the shortening of the sunset provision.