Banks snub BSP’s rediscounting facility

MANILA, Philippines  —  Banks ignored the peso rediscounting loan facility of the Bangko Sentral ng Pilipinas (BSP) in the first quarter due mainly to the banking industry’s high liquidity position and weak loan demand from the corporate sector.

The last time banks tapped the facility was in September last year.

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 end-user borrowers.

However, despite the decline, banks continue to recognize the BSP’s rediscount facilities as a funding option should liquidity no longer be sourced from the market. About 50 local banks have maintained their rediscounting lines with the BSP as part of their contingency funding plan.

Michael Ricafort, chief economist at Rizal Commercial Banking Corp., earlier attributed the drop in rediscounting loan activity to  weak loan demand from the corporate sector.

Instead, Ricafort said banks increased their lending activities to take advantage of the regulatory relief measures extended by the BSP or parked their excess funds in the liquidity absorption facilities of the central bank, including the term deposits, as well as BSP securities.

“The other liquidity easing measures, as well as regulatory relief measures, have also increased the leeway of banks to increase lending activities in lieu of tapping the BSP’s rediscounting,” Ricafort said.

Latest data from the BSP showed loans disbursed by big banks contracted by  2.7 percent in February as banks remained risk averse and due to the lack of demand from individual and corporate borrowers amid the uncertainties brought about by the pandemic.

“For the coming months, slowdown in the demand for loans and the continued excess liquidity in the financial system amid various liquidity infusion and regulatory relief measures would lead to less need for banks to tap the BSP rediscounting facilities,” Ricafort said.

The BSP  earlier approved the further extension of the temporary reduction in the spread on peso rediscounting loans relative to the central bank’s overnight lending rate to zero.

The central bank wants to make sure there is available credit to productive economic sectors by lowering effective lending rates and to encourage banks to lend to businesses to help them recover from the COVID-19 crisis.

The peso rediscounting loans extended by the BSP plunged by 78 percent to P26.9 billion last year from a record P122.7 billion in 2019 due to lack of borrowers.