BSP improves rediscounting facility

MANILA, Philippines — As part of its efforts to align credit operations with best practices globally, the Bangko Sentral ng Pilipinas said it would enhance its rediscounting facility by adding advances against government and BSP securities.

In a statement, the BSP said the rediscounting facility would be replaced by the Discount Window Facility (DWF), which will begin operations when BSP Circular 1202 dated Sept. 24 takes effect in November.

“Currently, BSP only rediscounts loans, accepting government securities as additional collateral. Under the DWF, banks will be able to directly offer GS and BSP securities in exchange for advances,” the central bank said.

“This gives the BSP an additional mode to influence credit volume consistent with its objectives of maintaining price and financial stability,” it said.

Rediscounting is one of the credit facilities offered by the BSP to qualified banks with active rediscounting lines to meet their temporary liquidity needs by refinancing the loans they extend to their clients using the eligible papers of their end-user borrowers.

The eligible papers include credit instruments, such as promissory notes, drafts or bills of exchange of commercial credits, production credits and other credits.

Under the new circular, the availments of all eligible banks will be drawn against their DWF line, which is based on their total credit score under the Credit Information System (CPIS).

“The amount of DWF line shall be based on the total credit score obtained by the applicant bank computed under the CRIS guidelines, which ranges from twenty-five percent to 100 percent of adjusted capital,” the BSP said.

DWF lines can be tapped by banks either by rediscounting loans or by offering their government securities and BSP securities for advances.

Banks can tap existing rediscounting lines until these lines expire a year after their effectivity, but only for rediscounting loans.

Lenders applying for a DWF line should submit their application in the prescribed form to the BSP’s department of loans and credit, together with required documents.

Applicants should have no past due obligations with the BSP. Banks with non-performing loans ratio higher than the industry average can also avail themselves of the DWF only through advances against securities issued by the national government and the central bank.

The BSP will conduct credit risk analysis of its credit exposure to borrowing banks and, if necessary, a risk-based credit verification to ensure the banks’ compliance with the terms and conditions of the loan.

The BSP will also determine the probability of default on the settlement of the banks’ obligations.

“Banks with existing rediscounting line may continue to avail themselves of the facility through rediscounting of eligible credit instruments until the expiration of their rediscounting line,” the BSP said.

Banks with existing rediscounting lines that plan to avail themselves of advances against government securities will be treated as new applications as well.