Bank rediscount loans surge 7-fold in Q1

MANILA, Philippines — Banks continued to take out more loans from the rediscount window of the Bangko Sentral ng Pilipinas (BSP) in the first quarter of the year to further boost their lending portfolio.

Data released by the central bank showed banks’ total availments under the peso rediscount facility reached P52.3 billion in the first quarter of the year, or more than seven times the P7.04 billion disbursed in the same period last 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 collateral.

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.

Out of the total amount disbursed under the peso rediscount facility from January to March, the BSP said the bulk or 56 percent went to other credits particularly for capital asset expenditures with 38.4 percent, other services with 9.6 percent, and permanent working capital with 7.9 percent.

The balance of 44 percent went to import loans with 34.6 percent and trading of goods with 9.3 percent.

Rediscount loans extended to local banks to finance the expansion needs of businesses and households hit a record P71.52 billion last year amid the series of interest rate hikes by the central bank to check rising inflation.

The amount was almost 50 times the P1.59 billion extended to banks in 2017.

Based on Republic Act 11211 or an act amending RA 7653 or the New Central Bank Act, the BSP’s credit policies in granting rediscounts, discounts, loans and advances must be consistent not only with the objective of price stability but also with the maintenance of financial stability.

The BSP currently pegged the rediscount rates for loans under the peso rediscount facility to 5.3125 percent for loans with maturity of up to 90 days and to 5.3750 percent for loans with maturity of up to 180 days.

As part of its tightening episode to prevent inflation from spiraling out of control, the BSP’s Monetary Board lifted interest rates by 175 basis points in five straight rate-setting meetings from May to November.

Inflation kicked up to 5.2 percent last year from 2.9 percent in 2017 and exceeding the BSP’s two to four percent target due to higher oil and food prices as well as the weak peso.

The central bank has managed to take a breather from the tightening episode since December by keeping rates unchanged due to easing inflationary pressures.

Inflation eased for five straight months to a 15-month low of 3.3 percent in March after peaking at 6.7 percent in September and October due to the tightening cycle as well as the adoption of non-monetary measures by the government.

Economists see the BSP reversing the tightening cycle by slashing interest rates as early as May 9 and releasing additional liquidity into the financial system by reducing the reserve requirement ratio or level of deposits banks are required to keep with the central bank.