Peso rediscount loans shunned amid surge in money supply


Thrift and rural banks mostly avoided borrowing from the central bank’s peso rediscount facility in the first quarter of this year, finding no need to seek refinancing for the loans they extend to clients through this special window given adequate liquidity in the banking system.

Data from the Bangko Sentral ng Pilipinas (BSP) on Friday showed total loans extended to thrift and rural banks under the rediscount facility plunged 96.3 percent to P412 million in the quarter to March from P10.987 billion in the same period a year earlier.

Likewise, banks’ use of the Exporters Dollar and Yen Rediscount Facility (EDYRF) marked a sharp year-on-year decline in the quarter, showing only a universal bank and a thrift bank availing of a combined $1.9 million of the financing facility, benefiting two exporters.

This represents a 95.9 percent decrease in availments, compared with the $46.1 million grants for the same period last year, the BSP said.

“The latest BSP data means that there was so much liquidity in the financial system and so thrift banks and rural banks didn’t have to borrow from the BSP’s rediscount windows,” said Victor Abola, senior economist at the University of Asia and the Pacific.

Of the P412 million rediscounted loans released through the banks in the quarter, commercial credits accounted for 74.2 percent, agricultural and industrial credits 3.8 percent, and the remaining 22  percent went to other credits such as permanent working capital (9.9 percent), other services (7.8 percent), capital expenditure (2.5 percent), and housing (1.8 percent).

Rediscounting is a privilege given by the BSP to banks that are qualified to obtain loans or advances using eligible borrowers’ papers as collateral.

Nicholas Antonio Mapa, Bank of the Philippine Islands associate economist, traced the decline in loans through the rediscounting facility to the more than 30 percent growth in domestic liquidity (M3) in the past few months.

M3, which measures money supply or the amount of cash and cash-equivalent securities circulating within an economy, surged 36.4 percent to P6.9 trillion in February. That even slowed from a revised 37.3 percent expansion, a record high, posted a month earlier.

Too much liquidity in the system had been a major factor in the central bank’s decision at its March 27 monetary policy meeting to raise the reserve requirement ratio (RRR) for banks by 1 percentage point to 19 percent, effective from April 4.

RRR is the portion of deposits that banks are required to keep with the central bank as reserve. A cut in the requirement will increase the supply of pesos circulating in the economy, making the local currency cheaper.


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