The Daily Tribune <<< Without Fear or Favor >>>

»HEADLINES

»NATION

BSP issues new rules to ease credit flow

By Ruben Hortelano

02/17/2009

The Bangko Sentral ng Pilipinas (BSP) hoped to counter local banks’ aversion to lending amid the global financial crisis by cutting its rediscount rate by 50 points and at the same time hiking the budget for the rediscounting facility for the second time in four months.

The BSP slashed its key overnight borrowing rate, at which the BSP pays banks for short-term deposits, by a total 100 basis points in December and January to five percent and analysts are expecting more cuts as inflation continues to ease.

The decision followed a surprise two-percentage point reduction in banks’ reserve requirement in November, the first adjustment in reserve ratios since July 2005.

The BSP’s peso rediscount rate is now at five percent.

The BSP raised its budget for the rediscounting facility by P20 billion more to P60 billion to allow more banks to sell debt papers.

The BSP also relaxed a requirement for banks to avail of the facility.

While formerly the BSP required a bank’s non-performing loan (NPL) level not to exceed two percentage points the industry average, now the BSP said the rule will be eased to 10 percentage points of the industry average.

Big banks which have NPLs less than four percent of loan portfolio may not incur a soured loans ratio exceeding 14 percent to be able to draw from the facility based on the new rules.

Thrift banks whose collective NPLs averaged 6.5 percent, will be allowed to post NPLs not larger than 16.5 percent.

The BSP said it also dispensed with the requirement for a surety agreement on banks seeking to tap the facility.

The agreement binds the biggest shareholders of banks tapping the window to a surety contract.

The BSP said the requirement is not needed anymore since rediscounted loans are covered by collateral anyway.

The limit on the loan value that can be rediscounted was also raised from 80 percent to 90 percent.

The BSP, however, retained the 70-percent cap on the appraised value of the underlying collateral.

The BSP added the rediscounting loan rate is now linked to the overnight borrowing rate of the BSP less 50 basis points rather than on the 91-day Treasury bill rate.

The BSP believes the shift in the rediscounting rate peg will lessen the cost of obtaining loans that they also hope the banks will pass on to borrowers in the form of lower interest on their loans.

BSP Gov. Amando Tetangco Jr. said most banks “tightened” their lending standards in response to the global economic downturn characterized by widespread fear of counterparty failure to pay back what they owe.

The tightening generally comes in the form of greater or more comprehensive documentary requirements from prospective borrowers rather than a generally more expensive cost of money, Tetangco said.