Rediscounted loans drop 76% to P10 billion in 5 months

MANILA, Philippines - The Bangko Sentral ng Pilipinas (BSP) reported over the weekend that total rediscounting loan availments by banking institutions plunged 76 percent in the first five months of the year as BSP continued to tighten its monetary policy stance to keep inflation expectations well anchored amid rising global oil prices.

The central bank said total availments under the BSP’s Peso Rediscount facility reached P10.1 billion from January to May this year or P31.7 billion lower than the P41.84 billion availed of in the same period last year.

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.

The BSP said 67.4 percent of the total rediscounting loans in the first four months of the year availed by commercial, thrift, and rural banks went to commercial credits while 7.4 percent went to agriculture and industrial clients. The data showed that 10.8 percent went to capital expenditures, 10.5 percent to other services, 2.4 percent to permanent working capital, 1.4 percent to housing, and 0.1 percent to microfinance.

Under the Exporters’ Dollar and Yen Rediscounting Facility, aggregate availments under the US dollar facility jumped 85.2 percent to $84.1 million from January to May compared to $45.4 million in the same period last year. The facility was offered by seven commercial banks benefiting 19 exporters.

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

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

As early as January last year, the BSP’s Monetary Board has lifted several liquidity-enhancing measures introduced starting November of 2008 in light of the strong economic recovery. In all the BSP raised the rate on a short-term lending facility to four percent from 3.5 percent and reduced 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.

The BSP raised its peso rediscount rate at 4.25 percent per annum under its Peso Rediscount facility for all maturities effective March 28. It has also pegged the rates for the month of May at 0.21025 percent per annum under the EDYRF and 0.14438 percent per annum for its Yen facility.

Last May 5, the BSP’s Monetary Board raised interest rates by 25 basis points as a preemptive move to keep inflation expectations well anchored amid rising global oil prices. This is the second straight policy rate setting meeting that monetary authorities raised interest rates bringing the overnight borrowing rate to 4.50 percent and the overnight lending rate to 6.50 percent.

The BSP slashed key policy rates by 200 basis points between December 2008 and July 2009 to cushion the impact of the global financial crisis on the domestic economy that brought overnight borrowing rate to a record low four percent and the overnight lending rate to six percent.

Last year, total rediscounting loan availments by banking institutions plunged 88.3 percent to P49.76 billion from P182.46 billion in 2009.

The year 2010 emerged as a banner year as earnings of the Philippine banking system went up by 31.4 percent to P91.2 billion last year from P69.4 billion in 2009 on the back of the industry’s strong interest and non-interest income while total assets of universal, commercial, thrift, rural, and cooperative banks went up by 11.6 percent to P6.91 trillion from P6.19 trillion.