BSP eases rules for bank fund raising via bonds

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BANKS can now raise fresh capital via corporate bonds with greater ease starting this month, as new rules do away with having to secure approval from the Bangko Sentral ng Pilipinas (BSP).

Circular No. 1010, issued by BSP Governor Nestor A. Espenilla, Jr. last week, simplifies the process for universal and commercial banks looking to raise funds via bonds, aligning the industry with standards for other privately owned companies.

“The issuance of bonds/commercial papers does not need prior approval of the Bangko Sentral,” the BSP said in a statement over the weekend.

The reform forms part of streamlined rules designed to deepen domestic capital markets.

Banks still have to comply with existing rules of the Securities and Exchange Commission (SEC), which include having such debt instruments enrolled in a market supervised by the corporate regulator.

Big banks now need only to submit a certification of compliance and supporting documents to the BSP within five banking days after their boards of directors approve the bond issuance.

The BSP said this privilege is reserved to banks which are of good standing, specifically, those:

• with a score of at least 3 under the Capital Adequacy, Asset Quality, Management, Earnings, Liquidity, and Sensitivity to Market Risk (CAMELS) rating system;

• with “no major supervisory concerns” in governance, risk management, internal control and compliance systems; and

• that have complied with directives or sanctions imposed by the BSP.

A number of banks have been tapping the capital markets in recent months as they raised more capital ahead of tighter risk management measures that will take effect on Jan. 1, 2019 under the international Basel 3 framework.

Currently, banks prefer issuing long-term negotiable certificates of deposit (LTNCDs) to raise additional funds. However, these actually entail bigger costs compared to soliciting other forms of investments, as these are actually time deposits and come with a higher reserve requirement rate.

In contrast, bonds come with a lower six percent reserve standard.

Other banks are also pursuing stock rights offers, involving the sale of additional shares to existing stockholders.

In order to observe prudence, an issuing bank and its sister firms cannot serve as market maker for the bond float “to prevent possible undue price influence and backdoor pre-termination.”

The lender must then appoint an independent third party bank to serve as underwriter. — Melissa Luz T. Lopez