Banks continue to snub BSP rediscount facility

MANILA, Philippines — Philippine banks continued to snub the central bank’s peso rediscount facility amid the massive liquidity in the financial system and tepid demand from corporate and individual borrowers due to uncertainties brought about by the pandemic, according to the Bangko Sentral ng Pilipinas (BSP).

Despite the extension of the zero spread on rediscount loans, latest data released by the central bank showed that banks borrowed a meager P6.12 million under the BSP’s rediscounting facility from January to September.

The amount represents the rediscount of production credits that financed industrial processing with 65.35 percent, other credits that funded capital asset expenditures with 24.81 percent, and permanent working capital with 9.84 percent.

The amount availed of by Philippine banks during the 10-month period was way lower that the P26.9 billion rediscounted loans granted by the BSP in the same period last year. For September alone, availment amounted to only about P600,000.

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 end-user borrowers.

Last July 29, the BSP, through Resolution 976, approved the extension of the zero spread on its peso rediscount loans until the end of 2021 to allow banks to tap the facility to meet their temporary liquidity needs amid the resurgence of COVID infections.

The BSP first approved the temporary reduction in the spread on peso rediscounting loans, usually used for capital asset expenditures and permanent working capital, among others, relative to the central bank’s overnight lending rate to zero initially from March 20 to May 19 last year after Luzon was placed under enhanced community quarantine to slow the spread of the virus.

It was extended to July 17 and Sept. 30, 2020 and to Jan. 31, April 30, July 31 and now until the end of 2021 as part of measures aimed at providing the needed liquidity of banks for purposes of maintaining price and financial stability amid the pandemic.

For October alone, the BSP said the applicable rediscount rate under the peso rediscount facility remains at 2.50 percent, regardless of maturity.

The BSP also agreed to extend the reduction of the term spread on rediscounting loans under the Exporters’ Dollar and Yen rediscount facility (EDYRF) to the 90-day London interbank offered rate plus 200 basis points, regardless of maturity until the end of the year.

The central bank said there was no loan availment under the EDYRF from January to September.

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 amid the massive liquidity released by the central bank into the financial system to cushion the impact of the global health crisis.