Banks’ obligations to BSP rose in first 5 months

Loans secured by banks from the rediscounting facility of the Bangko Sentral ng Pilipinas rose by over 60 percent in the first five months of the year, as the country’s low interest rate environment spurred demand for credit.

Data from the BSP showed that peso-denominated loans that it had extended to commercial, thrift and rural banks under its rediscount facility amounted to P16.6 billion from January to May—up by 64 percent from P10.1 billion in the same period last year.

The BSP lends to banks via the rediscounting facility to enable them to smoothly run their lending business even if they are tied up with receivables. Banks’ demand for discount loans from the BSP is influenced by the public’s demand for bank loans.

Loans obtained from the BSP facility are backed by the receivables of borrowing banks. The amount of loan extended to a bank is a discounted value of its receivables.

Monetary officials said the low interest rate environment helped spur banks’ demand for discount loans. The interest rate on discount loans currently stands at a record low of 4 percent.

The interest rate on discount loans is pegged to the BSP’s overnight borrowing rate, which stands at 4 percent. The BSP brought down the rate from 4.5 percent at the start of the year to stimulate demand for credit, and boost investment and consumption activities.

The economy, measured in terms of gross domestic product (GDP), grew by 6.4 percent in the first quarter from a year ago. This kept the economy on track to meet the 2012 growth target of 5 to 6 percent. Last year, the economy grew by only 3.9 percent.

Also, data from the central bank showed that  dollar-denominated loans secured by banks from the BSP’s rediscounting facility declined by 22 percent to $66 million in the same period.

The volatile global economy continued to dampen demand for the country’s exports and led to the drop in dollar-denominated loans.

Officials said the banking sector is expected to aid in the economy’s growth this year. They said the growing resources of banks in the country would enable them to lend more to consumers and businesses.