BSP asks banks to report repurchase agreements
THE CENTRAL BANK has required banks to report the volume of repurchase deals they forge with other firms starting last month, as the regulator sharpens its watch on the local money market.
The Bangko Sentral ng Pilipinas (BSP) through Memorandum M-2017-020 told banks and quasi-banks to start submitting monthly reports covering their repurchase agreements or repo effective June 30.
In prescribing the reporting template, the BSP said the submission of such data “aims to strengthen financial surveillance, particularly in monitoring market trends and vulnerabilities in repo markets, to enable supervisory authorities to formulate effective policy responses to ensure continued functioning and efficiency of the financial system,” the issuance read, as signed by now-BSP Governor Nestor A. Espenilla, Jr. on June 28.
Under a repo agreement, one party sells a security — such as Treasury bills and bonds — to another which it will buy back at a specified price and a future date, in the process providing the seller with short-term liquidity which it can use to hand out loans and service additional client withdrawals.
The BSP ordered a trial period for the data submissions covering transactions in November 2016, as provided under Circular 923 issued in September last year.
Banks and quasi-banks must report the amount of daily repo transactions to the central bank, as well as the outstanding balance by the end of each month. The report must also reflect transaction details, such as the outstanding balance, the repo rate, and the remaining maturity of each agreement.
Such submissions should be “comprehensive” and“transaction allevel data ,” which would
allow the BSP to monitor these fund movements closely.
Details about counterparties, particularly the repo buyer or cash lender must also be provided, and will be used to map the interconnectedness of such credit agreements. The type, quality, and fair value of a repurchase security must also be disclosed, the BSP said.
Currently, the BSP buys and sells government- issued debt papers held by banks with a 3.5% spread — the central bank’s benchmark repurchase rate — in order to expand or reduce the amount of money circulating in the financial system.
The increasing repo transactions are expected to help deepen the country’s capital markets, as it would unlock more funds which can support additional economic activity.
During his first speech as central bank chief on Monday, Mr. Espenilla vowed to work closely with other government agencies in order to “accelerate capital market reforms,” building on the gains made by his predecessor.