Total loans availed of by thrift and rural banks under the peso rediscount facility of the central bank slid 95.5 percent to P572 million in January to April from P12.678 billion in the same period a year earlier.
The continued decline in the first four months of the year showed these banks found no need to tap the special window for lending to their clients, given the abundance of liquidity in the market, analysts said.
“Banks did not need to resort to the rediscount [facility]in order to generate liquidity given the very low interest rate environment currently enjoyed in the country,” Nicholas Antonio Mapa, associate economist at the Bank of the Philippine Islands, said in an email to The Manila Times.
He said the banks likely borrowed funds from other sources at reasonable rates.
“With interest rates very low, they may have opted to borrow from other banks,” he said. The central bank recently kept overnight lending rate unchanged at 5.5 percent and borrowing rate at 3.5.
Of the P572 million rediscounted loans released through the banks in the four-month period, commercial credits accounted for 79.8 percent, agricultural and industrial credits 3.3 percent, and the remaining 16.9 percent went to other credits such as permanent working capital (7.4 percent), other services (5.9 percent), capital expenditure (1.8 percent), and housing (1.8 percent).
Also, banks’ use of the Exporters Dollar and Yen Rediscount Facility recorded a year-on-year decline in the period, showing only a universal bank and a thrift bank availing of a combined $2.8 million of the financing facility, benefiting two exporters.
This reflects a 94.7 percent drop in availments, compared with the $52.4 million grants for the same period last year, the BSP said.
Under the BSP rediscount window, a rural bank that seeks to liquidate outstanding client loans can run to the BSP to swap the loan for cash at a discount. The BSP takes on the loan from the rural bank and takes charge of collecting payments from the rural bank’s client.
“In the past when rural banks faced a liquidity crunch, they would go to the BSP to liquidate [an outstanding loan]and get the cash. The fact this is happening less may be because the rural banks and thrift banks are now facing less episodes of liquidity problems,” Mapa said.
Rediscounting is a privilege given by the BSP to banks that are qualified to obtain loans or advances using eligible borrowers’ papers as collateral.
As of end-March, the country’s domestic liquidity or M3 expanded by 34.8 percent reaching P7 trillion.
M3 measures money supply or the amount of cash and cash-equivalent securities circulating within an economy.
Too much liquidity in the system was a major factor in the central bank’s decision at its May 8 monetary policy meeting to raise the reserve requirement ratio (RRR) for banks further by 1 percentage point to 20 percent, effective May 30.