BSP extends zero spread on rediscounting loans

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

BSP Governor Benjamin Diokno said the Monetary Board approved the extension of the temporary measure in the rediscounting facilities anew through Resolution 1779 issued last Dec. 23.

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 in March 20 to May 19, 2020 after Luzon was placed under enhanced community quarantine to slow the spread of COVID.

It was extended to July 17 and Sept. 30 and to Jan. 31, April 30, July 31, and to Dec. 31 last year as part of measures aimed at providing the needed liquidity to banks for purposes of maintaining price and financial stability amid the global health crisis.

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.

Banks continued to snub the rediscounting, loan facilities of the BSP in the first half with only one bank borrowing P6.12 million during the 10-month period amid the massive P2.3 trillion additional liquidity released into the financial system through various COVID-19 response measures.

The peso rediscounting loans extended by the BSP plunged by 78 percent to P26.9 billion in 2020 from a record P122.7 billion in 2019.

The BSP emerged as one of the most aggressive central banks in the world after doing the heavy lifting to cushion the impact of the pandemic on the economy. It slashed interest rates by 200 basis points to an all-time low two percent and lowered the reserve requirement ratios of banks.