BSP extends zero spread on rediscounting

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) has extended anew the zero spread on its peso rediscount loans until the end of January next year to allow banks to tap the facility to meet their temporary liquidity needs amid the COVID-19 pandemic.

BSP Governor Benjamin Diokno said the Monetary Board has issued Resolution 1215 approving the extension of the reduction of the term spread on peso rediscounting loans to zero until Jan. 31 next year  as part of measures aimed at providing the needed liquidity to banks for purposes of maintaining price and financial stability.

The BSP 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 initially from March 20 to May 19. This was extended for another 60 days or until July 17 and by another 75 days or until Sept. 30.

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 its end-user borrowers.

During the height of the enhanced community quarantine, more banks tapped the facility as the spread was reduced 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.

With the zero spread, eligible rediscount loans are only charged the overnight lending rate of 2.75 percent, regardless of maturity.

Diokno said the reduction of the term spread on the applicable   dollar and Japanese yen rediscount rates under the Exporters’ Dollar and Yen Rediscount Facility (EDYRF) to the 90-day London interbank offered rate or an applicable benchmark rate such as the secured overnight financing rate plus 200 basis points, regardless of maturity, was also extended until Jan. 31 next year.

The BSP chief issued Memorandum No. 2020 – 076 allowing the acceptance for rediscounting with the BSP under the EDYRF the US dollar- and Japanese yen -denominated credit instruments related to the economic activities, except for loans to banks and capital markets, and only to those end-user borrowers operating during the enhanced community quarantine.

The resolution also approved the acceptance for rediscounting with the BSP of credit instruments compliant with the requirements on eligible papers and collaterals that were granted one-time 60-day grace period or longer as may be mutually agreed by the parties under Republic Act 11494 or the Bayanihan to Recover as One Act until Jan. 31.

Data from the BSP showed banks borrowed P20.7 billion under the peso rediscount facility from January to August to meet their temporary liquidity needs by refinancing the loans they extend to their clients using the eligible papers of their end-user borrowers.

However, banks only tapped the peso rediscounting facility for the months of March, April, and August,   especially as the COVID-19 measures adopted by the BSP unleashed much needed liquidity into the financial system.

The BSP earlier said the decision on the rediscount rates is still in line with its accommodative stance to further ease the cost of borrowing and ensure ample credit and liquidity in the financial system as the economy transitions toward recovery after shifting to general community quarantine in June 1.