BANKS TAPPED the rediscount facility again in March after the central bank cut policy rates amid the impact of the coronavirus disease 2019 (COVID-19) and the Luzon-wide lockdown.
Peso rediscount borrowings hit P6.858 billion in March, according to data released by the Bangko Sentral ng Pilipinas (BSP) on Monday.
This ended a drought in availments as the facility was last tapped by lenders in October, when peso rediscount loans totalled P3.493 billion.
However, last month’s peso rediscount loans were lower than the P17.406 billion seen in March 2019.
Through the rediscount window, the central bank lets banks secure additional money supply by posting their collectibles from clients as collaterals.
Lenders can use the fresh cash — whether in peso, dollar or yen — to disburse more loans for corporate or retail clients and service unexpected withdrawals.
According to the central bank, 74.08% of the loans secured were used for commercial, production, and other credits. These loans were channelled into permanent working capital (41.85%) and capital asset expenditures (32.23%).
Meanwhile, commercial credits made up 25.92% of total rediscounting loans and were funneled into bank loans for importation (17.3%) and trading of goods (8.62%).
On the other hand, the exporters’ dollar and yen rediscount facility (EDYRF) remained untapped.
Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said the lower rates imposed may have attracted banks to tap into the BSP’s credit line.
“[The] BSP’s peso rediscounting facility may have been made attractive by the lower effective borrowing rates for banks as well as various monetary tools introduced that infuse more peso liquidity into the banking system and the broader economy to better service the requirements of bank clients amid the enhanced community quarantine (ECQ),” Mr. Ricafort said in an e-mailed response.
The BSP slashed rates by 50 basis points in March to provide support to the economy amid an expected slowdown due to the outbreak. This brought the overnight reverse repurchase, deposit and lending rates to 3.25%, 2.75% and 3.75%, respectively.
During a crisis, the peso rediscount facility is a safety valve for banks when a short-term fall in reserves occurs, according to UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion.
“This facility is specifically for COVID-19 induced situations and helps banks cope with extraordinary situations,” Mr. Asuncion said in an e-mailed response.
“I do expect that the banking sector will continue to access the rediscount facility and try to use the tool to help their daily reserve needs,” he added. “EDYRF remains untouched particularly because of the obvious weakness in the export sector during these times.”
Meanwhile, for this month, effective rediscount rates for peso loans have been maintained at 3.75%, which is the current overnight borrowing rate, regardless of loan maturity as part of the central bank’s regulatory relief for financial institutions in the midst of the outbreak and the Luzon lockdown. This will be applicable until May 19 unless extended by the Monetary Board (MB).
“Such is in accordance with the decision of the MB, in its meeting dated 19 March 2020, to temporarily reduce the term spread on peso rediscount loans relative to overnight lending rate to zero, among others,” the BSP said.
Meanwhile, dollar credit lines will have a rate of 3.88213% for those maturing at three months or less; 4.31413% for those maturing within a 91- to 180-day period; and 5.17813% for those with a tenor of 181-360 days.
For yen-denominated credits, rates applicable will be 2.37883% for 1-90 day loans; 2.81083% for 91-180 day loans; and 3.67483% for 181-360 day loans.
Applicable rates for the EDYRF are based on the 90-day London Inter-Bank Offered Rate plus a spread depending on the term of the loan. — Luz Wendy T. Noble