BAP pushes adoption of BVAL rates as Libor use ends

MANILA  -The powerful Bankers Association of the Philippines (BAP) is pushing for the use of Philippine Bloomberg Valuation (BVAL) benchmarks ahead of the June 30, 2023 phaseout of the London Interbank Offered Rate (Libor) that is used in a host of financial products, including loans and mortgages, even as it expressed support for regulators’ plan to adopt a new reference over the next six months.

The use of the Libor, the benchmark rate at which major global banks lend to each other in the international market, expires on June 30. This is partly due to scandals involving alleged yield manipulation by rate-setting banks.

As the US dollar Libor ends, the central bank will, in the meantime, use an overnight rate based on the 28-day Bangko Sentral ng Pilipinas (BSP) Bill rate over the next six months.

In consultation with industry players, the BSP plans to roll out a new reference by January 2024.

For the BAP, its members believe the Philippine BVAL benchmarks, currently overseen by the BAP as a Securities and Exchange Commission (SEC)-licensed administrator, “remain credible.”

The bankers’ group said participants in the financial and capital market of the Philippines accept BVAL – calculated by Bloomberg Finance Singapore – as a benchmark.

“Market confidence in the use of BVAL is a result of rigorous back-testing and its ability to perform straight through processing—a critical element to deliver efficient and convenient services to bank customers,” the BAP said.

The group added that BVAL is compliant with the International Organization of Securities Commissions principles for financial benchmarks, accepted by the Philippine board of accounting professionals, and supported by regulatory issuances of both the BSP and the SEC.

“The BAP welcomes the BSP initiatives to enhance the benchmarks,” the group said. “We will continue to work actively with the regulators to ascertain that any foreseeable benchmark implementation undergoes system-wide testing, accreditation, and general acceptance by all market stakeholders.”

The BAP stressed they want to have a yield curve that is based on actively traded securities that result in high-volume transactions in the market.

“Compared to other markets in the region, the Philippines still strives to have a deeper and more vibrant securities market,” the BAP said.

The group noted that the 5-year, 7-year and 10-year securities are currently actively traded in the market. At the same time, the 12-year, 15-year, and 20-year bonds are receiving strong interest from market participants and investors.

The BAP said these securities provide the banking industry sufficient support for pricing bank products such as loans, mortgages, investments, and marking-to-market of banks, own portfolios.

“We are fortunate that the Philippine market is supported by a globally recognized benchmark methodology that is utilized in over 100 jurisdictions,” the group said. —With reports from Ronnel W. Domingo and Miguel R. Camus

READ: As Libor nears end, BSP tells banks to start transition to other benchmarks