By Melissa Luz T. Lopez, Senior Reporter

BSP chief Tetangco makes final push for capital market reforms

Posted on May 31, 2017

OUTGOING central bank Governor Amando M. Tetangco, Jr. wants to give a final push to deepen the country’s capital markets, which is seen to unlock additional liquidity for the financial system.

Bangko Sentral ng Pilipinas Gov. Amando M. Tetangco, Jr. ends his second term on July 2. -- BW FILE PHOTO
The outgoing chief of the Bangko Sentral ng Pilipinas (BSP) said he is eyeing to deploy regulations for the overnight index swap (OIS) system and repurchase agreements, which when approved will allow banks to hold more cash for loans and sustain business operations.

“There are still outstanding capital market reforms that we are continuing to push like the OIS and hopefully that can be done, we are almost there,” Mr. Tetangco told reporters in an ambush interview last week when asked for additional reforms he wants in place before he leaves office.

“For the repo, there’s still some areas that need to be clarified but I think we have also made substantial progress there.”

Mr. Tetangco previously said that he is looking to allow banks to place their holdings of government securities under a repurchase agreement, which would effectively generate fresh money supply.

Under a repo agreement, one party sells a security -- such as Treasury bills and bonds -- to another which it will buy back at a specified price and a future date, which will accord them with short-term liquidity.

Starting this year, the central bank has required banks and non-bank entities to regularly report the repurchase arrangements they forge. A firm must report the amount of daily repo transactions incurred by a bank or quasi-bank, as well as the outstanding balance by the end of each month.

On the other hand, the BSP has been working to put up the OIS as early as 2013, which will create a benchmark for banks’ short-term loans. Lenders currently peg borrowing rates on Treasury bills, which have logged below the central bank’s 3% policy rate.

The OIS is similar to the London Interbank Offered Rate, but will reflect the rates fetched for actual transactions on a daily basis to promote greater transparency in the market.

Mr. Tetangco ends his second and final term on July 2 after taking the BSP’s helm for 12 straight years.

Deputy Governor Nestor A. Espenilla, Jr. will assume the top post at the central bank by July, who has assured broad policy continuity for his upcoming six-year term.

Mr. Tetangco said the central bank needs to “keep a steady hand” for the coming months, especially with heightened volatility at the global financial markets.

Among the sources of market uncertainty are the timing of future interest rate hikes in the United States and a trend of protectionism among economies, to name a few.