BSP eases rules on bond, IOU issues
As the government pursues peso debt market development aimed at establishing an integrated financial market in the country, the Bangko Sentral ng Pilipinas has eased rules on financial institutions’ bond and commercial paper issuances.
In a statement issued last Friday, the BSP said the Monetary Board, its highest policymaking body, approved amendments to pertinent regulations to streamline the requirements on the issuance of bonds and commercial papers by banks and quasi-banks.
“The amendments include removal of the minimum bond features such as the requirement on eligible collaterals, which may constrain banks and quasi-banks from issuing debt securities. The revised regulation, however, reiterates compliance with the securities law and its implementing rules and regulations,” the BSP said.
The new regulation aims to provide greater flexibility to banks and quasi-banks in tapping the capital market as an alternative funding source and is also consistent with the initiatives of the BSP, together with other financial regulators, to spur the development of the domestic bond market, it added.
Last week, BSP Governor Nestor Espenilla Jr. disclosed that the government would roll out the repo in November as part of the peso debt market development roadmap to be launched also next month. A repo, short for repurchase agreement, allows a dealer to sell and repurchase short-term government securities such as treasury bills to a lender at a specified future date and an agreed price.
“By November of this year, we also look forward to the first trade in the repo market,” Espenilla said in a speech.
Repos are said to provide lenders low risk and are usually used to raise short-term capital. Espenilla had said the government’s “ambition” was to see an active repo market by 2019.
The launch of the repo forms part of the reforms to be introduced to develop the domestic capital market in line with the government’s plan to finance the wider budget deficit equivalent to 3 percent of gross domestic product (GDP) until 2022 through a borrowing mix mostly reliant on local sources, which will have an 80-percent share.
Espenilla said the reform package aimed to increase the volume of treasury bills, provide a transparent mechanism covering the issuance of government securities, establish a reliable yield curve, develop a set of obligations, rights and incentives of market makers, introduce an efficient repo market as well as strengthen regulatory oversight over the repo and fixed income market.
According to Espenilla, the initial phase would focus on improving benchmark markets as this was critical in pricing risk assets and other capital market instruments.
“We will follow a coordinated and deliberate sequenced approach to ensure smooth implementation of these reforms. I am happy to report that to date, we have seen progress from these initiatives,” Espenilla said.
