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On a roll, BSP makes it cheaper for banks to issue bonds

By: - Reporter / @daxinq
/ 04:37 PM October 15, 2019

Starting next month, banks will have more cash to lend out for productive uses after the central bank approved a cut in the amount of liquidity that financial institutions must set aside to back up their debt securities.

In a statement, the Bangko Sentral ng Pilipinas (BSP) said its policy making Monetary Board approved the reduction in reserve requirement rate for bonds issued by banks and quasi-banks to 3 percent “as part of its commitment to contribute to deepening of the local debt market.”

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This 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. The new reserve requirement ratio shall take effect on the reserve week that begins on Nov. 1, 2019.

The cut in the reserves for banks’ bond issues — though substantially smaller than the nearly P100 billion that was freed up during last September’s 100-basis point cut for reserves on bank deposits — is “a step in the right direction,” according to bank officials who spoke to the Inquirer.

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“[Bank-issued bonds] make up a relatively smaller market, because we’re still a deposit-based industry,” said one bank president. “But that’s definitely a good move.”

The central bank said the lower bank reserves on bond issuances is expected to reduce the bond issuers’ intermediation cost that could be passed on to holders of such securities.

The adjustment in the required reserves for bonds complements the BSP’s earlier policy issuance streamlining the rules and requirements for the issuance of debt instruments by banks and quasi-banks. These initiatives are intended to goad financial institutions into tapping the domestic bond market as part of their liquidity management activities.

Late last month, central bank announced another round of monetary policy easing a day after it reduced its key benchmark rate.

Bangko Sentral ng Pilipinas Governor Benjamin Diokno said universal and commercial banks will be mandated to keep 15 percent of their deposits as liquid reserves starting on the first day of the first reserve week of November 2019./TSB

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TAGS: banks, Bonds, BSP, cash, central bank, liquidity, Securities
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