Rediscounting loans drop 59% in July

MANILA, Philippines - Total rediscounting loan availments by banking institutions continued to drop, plunging by 59 percent as of end-July as monetary authorities lifted crisis-related measures to siphon off excess liquidity in the financial system, the Bangko Sentral ng Pilipinas (BSP) reported yesterday.

Data showed that the total availments under the BSP’s peso rediscount facility reached P44.22 billion from January to July this year or P63.9 billion lower than the P108.12 billion availed of in the same period last year.

About 55 percent of the total rediscounting loans availed of by commercial, thrift, and rural banks went to commercial credits while 27.3 percent went to other services, 8.8 percent to capital expenditures, 2.9 percent to permanent working capital, and 1.7 percent to housing.

Furthermore, about 4.3 percent of the total availments under the Peso Rediscount facility went to agricultural and industrial credits while only less than 0.1 percent went to microfinance.

Under the Exporters’ Dollar and Yen Rediscounting Facility, aggregate availments under the US dollar facility jumped 54.3 percent to $57.1 million in the first seven months of the year from $37 million in the same period last year. The facility benefitted 24 exporters from January to July this year.

The BSP said there was no availment under the Yen facility during the period.

Rediscounting is a standing credit facility provided by the BSP to help banks meet temporary liquidity needs by refinancing the loans they extend to their clients.

Monetary authorities use rediscounting loans as a monetary tool to regulate liquidity.

Since the start of the year, the BSP has lifted several liquidity-enhancing measures introduced starting November of 2008 in light of the strong economic recovery. It would be recalled that monetary authorities introduced several crisis-related measure in November 2008 to release more liquidity into the financial system to cushion the impact of the global financial crisis.

Since January, the central bank tweaked several measures including the increase in the rate on a short-term lending facility to four percent from 3.5 percent as well as the reduction of the peso rediscounting budget from P60 billion to P40 billion and further to P20 billion.

The central bank also restored the loan value of all eligible rediscounting papers to 80 percent from 90 percent of the borrowing bank’s credit instrument and at the same time revived the non-performing loan (NPL) ratio requirement of two percentage points from 10 percentage points above the latest available industry average NPL for banks wishing to avail of the rediscounting facility.

However, authorities decided to keep its key policy rates at record lows due to benign inflation outlook. The BSP slashed its key policy rates by 200 basis points between December of 2008 to July of 2009 bringing the overnight borrowing rate at a record low of four percent and the overnight lending rate at six percent.

The BSP also reported yesterday that the availments under the Peso Rediscount Facility excluded the P9 million rediscounting loans granted to micro, small and medium enterprises (MSMEs) affected by tropical storm Ondoy and typhoon Pepeng last year.