Rediscounting loans fall 45% in 2011

MANILA, Philippines - Total rediscounting loan availments by banking institutions plunged 45 percent last year as the country’s banking system remained robust despite the sovereign debt crisis in Europe as well as the economic slowdown in the US.

The Bangko Sentral ng Pilipinas (BSP) reported yesterday that total availments under the central bank’s Peso Rediscount facility amounted to P27.37 billion last year or P22.39 billion lower than the previous year’s P49.76 billion.

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.

However, the country was awash with liquidity as money circulating in the financial system expanded by 7.2 percent to P4.44 trillion as of end-November last year from P4.14 trillion as of end-November 2010.

According to BSP data, 64.8 percent of the total rediscounting loans availed of by commercial, thrift, and rural banks last year went to commercial credits while 6.4 percent went to agriculture and industrial clients.

Futhermore, about 16.4 percent went to capital expenditures, 8.7 percent to other services, 2.8 percent to permanent working capital, 0.8 percent to housing, and 0.1 percent to microfinance.

The BSP reported that aggregate availments under the US dollar facility of the Exporters’ Dollar and Yen Rediscounting Facility surged 146.4 percent to $207 million last year compared to $84 million in 2010. The facility was offered by 10 commercial banks benefiting 33 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. Last year, total rediscounting loan availments by banking institutions plunged 88.3 percent to P49.76 billion from P182.46 billion in 2009.

The BSP raised its Peso Rediscount rate at 4.50 percent per annum under its Peso Rediscount facility for all maturities effective May 9. It has also pegged the rates for January at 0.2953 percent per annum under the EDYRF and 0.14429 percent per annum for its Yen Facility.

Last year, the BSP raised interest rates by 50 basis points as a preemptive move to keep inflation expectations well anchored amid rising global oil prices. This brought the overnight borrowing rate to 4.50 percent and the overnight lending rate to 6.50 percent.

It also raised the reserve requirement ratio for banks by a combined 200 basis points last June 16 and July 28, bringing the threshold to 21 percent from 19 percent to siphon off close to P70 billion from the financial system to curb additional inflationary pressures arising from excess liquidity from strong foreign capital inflows.

Amid external developments, the BSP said the Philippine banking system sustained its sound footing supported by solid asset growth and robust credit expansion.