THE BANGKO SENTRAL ng Pilipinas (BSP) has terminated its overdraft credit line (OCL) for banks that directly participate in clearing operations as its use is now covered by a newly implemented facility.

The OCL is an arrangement where lenders can temporarily borrow funds from the BSP to cover any deficits in their demand deposit accounts due to clearing activities.

In a circular posted on the BSP website, the Monetary Board has approved changes to the check clearing and settlement regulations in the Manual of Regulations for Banks (MORB).

The move is meant to comply with the requirements set in Section 610 of the Manual of Regulations for Payment Systems (MORPS) and to terminate the OCL of the BSP.

According to the central bank, the OCL’s “limited purpose of addressing overdrafts arising from check clearing losses is covered by the BSP’s automated intraday settlement facility (ISF) that the banks can use not only for the settlement of check clearing results but also for any other local currency real-time gross settlement (RTGS).” 

The BSP said it will now provide an ISF to eligible participants to ensure a smooth flow of payments through the RTGS payment system (PS) and timely execution of interdependent settlements to manage systemic risk.

Based on a separate circular, eligible participants to the ISF are RTGS participants owning National Government peso-denominated scripless securities that are free and unencumbered, with a remaining maturity of 11 days to 10 years. 

The securities should be registered in the enhanced National Registry of Scripless Securities under the name of the ISF participant.

Eligible securities will also be valued using the appropriate market rates from the previous day, as prescribed by the Securities and Exchange Commission.

The ISF will also allow banks that participate in the peso RTGS PS to obtain funds from the BSP through a sale and repurchase method. This is to prevent gridlock in the system due to a timing mismatch in settling large-value payments.

“In order to encourage availment and prompt repurchase of securities by the ISF participants, the BSP shall impose no fee if the repurchase is done within the period prescribed by the BSP on the same business day the ISF is availed,” the central bank said.

Extended ISFs will be subjected to a fee equivalent to the BSP’s overnight lending facility (OLF) rate, with an additional 600 basis points.

Banks may use the facility more than once during the same business day the securities were transferred and valued.

“Violations of the applicable rules, including repeated failure to repurchase securities sold to the BSP under an Extended ISF availment, are governed by penalties and sanctions provided under section 621 of the MORPS, including but not limited to cancellation of ISF eligibility and pre-termination of any outstanding ISF availment,” the BSP said.

The Philippine peso RTGS system, known as PhilPaSSplus, is the sole RTGS system in the Philippines. It is owned and operated by the BSP as authorized under the National Payment Systems Act.

PhilPaSSplus provides instant settlement of payments, transfer instructions, or other obligations individually on a transaction-by-transaction basis. It also settles large value funds transfers between financial institutions.

PhilPaSSplus facilitates the settlement of fixed-income security trades, foreign exchange trades, and other financial market transactions.

The previous credit line was designed to be a safety net for financial institutions during clearing operations, which allows them to manage temporary liquidity shortfalls more effectively. — Keisha B. Ta-asan