Banks reduce rediscounting loans by 78Share Facebook Qualified banks included in the central banks rediscounting facility only took out P26.90 billion of rediscounting loans as of end2020

77.98 percent lower compared to end2019 of P122.17 billion.Based on Bangko Sentral ng Pilipinas BSP data

there were less banks that availed of rediscounting loans during the lockdown period

in fact the availments were frozen at P2527 billion in the last half of 2020 because banks have excess cash following the BSPs liquidityenhancing measures as a defensive response to the virus outbreak.About 50 banks have an active rediscounting line with the BSP amounting to P321 billion last year

of which 17 are universal and commercial banks. The rediscounting lines were part of banks contingency funding plan.The big banks have accounted for P26 billion of the total while the rest or almost P1 billion were released to thrift and ruralcooperative banks.The rediscounting loans have a maximum term of 180 days and because of the pandemic

the BSP has reduced the term spread relative to the BSPs overnight lending rate to zero regardless of maturity

from 1day to 180days.Before the BSP shifted to an interest rate corridor system four years ago

the rediscounting facility was a popular central bank toolkit for managing liquidity in the system. Its an alternative to reducing the policy rate.The BSP in the past impose a limit or a specific budget to its rediscounting facility. Last year

with the pandemic

the BSP removed the facilitys budget cap and adopted an open regime. This was part of BSPs temporary relief measures granted to banks to cushion the impact of restricted economic activity.Qualified banks can avail of the BSPs rediscounting credit facility for temporary liquidity requirements by refinancing the loans they extend to their clients using the eligible papers of its enduser borrowers. Accepted eligible papers or credit instruments are classified as commercial credits

production credits and other credits. The last revision BSP implemented for its rediscounting rules was in January last year in preparation for the discontinuation of the London InterBank Offered Rate LIBOR. LIBOR

the dominant reference rate for a long time

will expire by the end of this year and it will be discontinued after being plagued by raterigging issues.The BSP and other affected central banks in the region will have to come up with alternative reference rates and riskfree rates with the discontinuation of the LIBOR.Last year

also before the pandemic

the BSP also approved a shift from fixed to a flexible term premium for the rediscounting facility to have the flexibility to recalibrate the rates.masteragcaoili25View Count