BSP waives spread on rediscount loans
Lawrence Agcaoili (The Philippine Star) - May 20, 2020 - 12:00am

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) is waiving anew the spread on its peso rediscount loans for two more months to allow banks to tap the facility to meet their temporary liquidity needs amid the coronavirus disease 2019 or COVID-19 pandemic.

BSP Governor Benjamin Diokno said the Monetary Board, through Resolution 647, has approved the extension of the reduction of the term spread on peso rediscounting loans to zero by an additional 60 days or until July 17.

The central bank first approved the temporary reduction in the spread on peso rediscounting loans usually used for capital asset expenditures, permanent working capital, among others relative to the central bank’s overnight lending rate to zero from March 20 to May 19.

Rediscounting is a BSP credit facility extended to qualified banks with active rediscounting lines to meet their temporary liquidity needs by refinancing the loans they extend to their clients using the eligible papers of their borrowers.

More banks have been tapping the facility after the BSP approved earlier the temporary reduction in the spread to zero. The peso rediscount rates are usually based on the latest BSP overnight lending rate plus a spread depending on the term of the loan.

The BSP has so far slashed interest rates by 125 basis points including the deeper 50-basis point cut during its first ever off-cycle meeting on April 16, bringing the overnight reverse repurchase rate to an all-time low of 2.75 basis points.

It also lowered the reserve requirement ratio for big banks by 200 basis points, freeing up P200 billion to boost economic activity. The easing measures are aimed at boosting market confidence and softening the blow of the pandemic.

As such, the central bank now imposes a flat interest rate of 3.75 percent for loans under the peso rediscount facility, regardless of loan maturity. The peso rediscount rates are usually based on the latest BSP overnight lending rate plus a spread depending on the term of the loan.

Philippine banks borrowed P20.7 billion from the central bank’s peso rediscounting loan facility from January to April. Prior to the removal of the spread on peso rediscounting loans, there were no availments in the first two months.

Loans from the peso rediscount window of the central bank jumped by 71 percent to a record high of P122.17 billion last year from P71.52 billion in 2018 .

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