Bank affiliates barred from holding debt papers

MANILA, Philippines — Related entities of Philippine banks are not allowed to hold bonds, commercial papers as well as long-term negotiable certificates of deposits (LTNCDs), according to the Bangko Sentral ng Pilipinas (BSP).

BSP Deputy Governor Chuchi Fonacier said the central bank prohibits an issuing bank and its related entities from holding the bank’s debt instruments based on the Manual of Regulations of Banks (MORB) and Manual of Regulations for Non-Bank Financial Institution (MORNBFI).

“The prohibition is meant to prevent certain parties from obtaining undue advantage when transacting in the subject debt instruments. As such, related parties as used in the said issuance only refer to those who are in possession or have access to material and non-public information affecting the pricing and marketability of the issuance or that which substantially impacts an investor’s decision to buy or sell the security once the same is disseminated to the public,” Fonacier said.

She clarified trust entities, however, are exempted from the prohibition.

“While trust entities are not covered by the prohibition, they must ensure that they are not used as avenues to acquire instruments that would otherwise be prohibited as direct investments of their clients,” Fonacier said.

According to the BSP, issuing banks and trust entities are expected to put in place monitoring and control mechanisms to ensure that their activities are aligned with the provisions of Circular 1062 issued last Nov. 26.

Banks continued to tap both the onshore and offshore debt markets to diversify their funding sources and to raise funds to bankroll their expansion programs.

Last year, Philippine banks and financial institutions accounted for about 72 percent of the record high P375.6 billion worth of debt papers listed on the Philippine Dealing and Exchange Corp. (PDEx).

Debt issuance by Philippine banks jumped by 132.5 percent to P268.98 billion in 2019 from P115.7 billion in 2018.

BDO Unibank Inc. raised P48.82 billion through the issuance of bonds and LTNCDs. The bank issued P35 billion worth of senior fixed rate bonds due 2020, P7.32 billion worth of LTNCDs due 2024, and P6.5 billion worth of LTNCDs due 2025.

On the other hand, Metropolitan Bank & Trust Co. (Metrobank), also raised a total of P42.5 billion. It issued P17.5 billion through the issuance of fixed rate bonds due 2022 as well as P25 billion worth of Series A bonds due 2021 and 2023.

Rizal Commercial Banking Corp. (RCBC) issued P30.5 billion worth of bonds. It became the first bank to issue fixed rate ASEAN green bonds due 2020 worth P15 billion, ASEAN sustainability bonds worth P8 billion, and fixed rate bonds due 2022 worth P7.5 billion.