BSP okays new bond eligibility rule
“Likewise, the registry bank, including the underwriter/arranger of the issuance, shall be a third party with no subsidiary/affiliate relationship with the issuing bank/quasi bank, and which is not related to the issuing bank/quasi bank in any manner that would undermine its independence," according to the circular.
This prohibition is similar to the BSP’s requirement on the issuance of Long-term Negotiable Certificates of Time Deposits or LTNCTDs to “prevent possible undue price influence and backdoor pre-termination.”
The BSP said it will continue to apply a six percent reserve requirement rate for bonds, which are considered as deposit substitute instruments. This rate is lower than those required for other deposit substitute instruments and the LTNCTDs, it added.
The Bangko Sentral ng Pilipinas (BSP) has approved an enhanced eligibility rule for banks applying to issue bonds and commercial papers, requiring their enrollment in a sanctioned market for debt and money market securities.
BSP Governor Nestor A. Espenilla Jr., who signed BSP Cirular No.1010 (“Additional Requirements for the lssuance of Bonds and Commercial Papers”) before the weekend, said a bank or a quasi bank may issue bonds and commercial papers without prior BSP approval if they meet three primary conditions set by the circular.
Also, the circular requires that the “bonds issued are enrolled and/or traded in a market which is organized in accordance with the SEC (Securities and Exchange Commission) rules and regulations,” he said. These conditions or “prudential criteria” set under the circular includes that the bank must have a CAMELS (capital adequacy, asset quality, management, earnings, and liquidity) composite rating of at least "3" and a "Management" rating of not lower than "3", while a quasi bank must have a RAS (risk assessment system) rating of at least "Acceptable."
Also, the bank or quasi bank has no major supervisory concerns in governance, risk management systems, and internal controls and compliance system. In addition, the bank or quasi bank has complied with directives and/or is not subject of specific directives and/or enforcement actions by the BSP.
The central bank said the set of criteria is aligned with BSP Circular No. 947 or the licensing rules while requiring banks to enroll or trade the bonds in a market recognized by the SEC is intended to promote price discovery and transparency.
To by-pass any BSP approval, banks have to submit a certification of compliance with the prudential criteria, with supporting documents such as approval by the board of directors and that such issuance is included in the bank’s funding plans.
The circular also has a prohibition on issuing banks and their related entities, that the issuer – including its subsidiaries, affiliates, and the wholly or majority-owned or -controlled entities of such subsidiaries and affiliates – is prohibited from holding or acting as a market maker of the bank's listed or traded bonds or commercial papers.