BSP trims bonds’ reserve requirement rate to 3%
Credit to Author: MAYVELIN U. CARABALLO, TMT| Date: Tue, 15 Oct 2019 16:30:04 +0000
THE Bangko Sentral ng Pilipinas (BSP) has cut the reserve requirement rate for bonds issued by banks and quasi-banks (QBs) to 3 percent from 6 percent, which analysts said would level the playing field.
Its policy-making Monetary Board approved the reduction “as part of its commitment to contribute to [the] deepening of the local debt market,” the central bank said in a statement on Tuesday.
The rate is “lower than the required reserves of other debt instruments issued by banks, such as long-term negotiable certificates of time deposits, which is currently at 4 percent,” it added.
“The lower bank reserves on bond issuances is expected to reduce the bond issuers’ intermediation cost that could be passed on to the holders of such securities.”
The new reserve requirement ratio shall take effect on the reserve week beginning starting November 1.
Analysts welcomed the decision, saying it would ease liquidity pressures and level the playing field.
Security Bank Corp. chief economist Robert Dan Roces explained that “lower reserve requirements will ease liquidity pressures for banks/QBs and should pull lending out of the steady decline that started in October.”
“And with the recent interest rate cuts, loan demand will pick up, so easing liquidity pressures should help transmit new policy rates to borrowers and help deepen the local debt market, plus help in the banks/QBs’ ability to quicken the pace of lending,” he added.
For his part, Bank of the Philippine Islands Vice President and lead economist Emilio Neri Jr. said “this means [that] monetary authorities will continue to level the playing field among existing financial market instruments, including the reserve requirement on regular deposits of commercial banks, which will be 15 percent by November 2022.”
The BSP pointed out that the latest adjustment complemented its earlier policy issuance streamlining rules and requirements for the issuance of debt instruments by banks/QBs.
In August 2018, the central bank said eligible lenders would no longer need prior regulatory approval when issuing bonds and commercial papers.
Universal/commercial banks and QBs would only need to prove their eligibility and that the debt issuance had been approved by their respective boards as a fund-raising activity.
But banks should enroll or trade the bonds in a Securities and Exchange Commission-recognized market “to promote price discovery and transparency.”
“These initiatives are intended to incentivize banks/QBs to tap the domestic bond market as part of its liquidity management,” the BSP said.