BSP relaxes bank bond issuance rules
RULES on bank bond issuances have been relaxed to make fundraising by lenders easier, the chief of the Bangko Sentral ng Pilipinas (BSP) said on Friday.
“We issued the rules that will facilitate banks to issue bonds into the market,” central bank Governor Nestor Espenilla Jr. told reporters in an interview.
This could wean banks away from a preference for long- term negotiable certificates of deposit ( LTNCDs) as a means to raise long- term funding to support their growth.
LTNCDs are basically deposit instruments, Espenilla said, adding that a shift to bonds could also help build the domestic corporate bond market.
“It can be costlier to do LTNCDs down the road,” he added without elaborating.
LTNCDs are similar to time deposits but have longer maturities and higher yields. They are negotiable and are insured with the Philippine Deposit Insurance Corp. up to P500,000 per depositor.
The issuer is obliged to redeem the face value of the certificate upon maturity. Interest income on LTNCDs is also tax- exempt for qualified individuals or institutions if held for at least five years.
Espenilla also pointed out that while banks are allowed to issue bonds in the past, gaps in the rules made it difficult for them to comply.
“What we did is we coordinated with the SEC (Securities and Exchange Commission). The bottomline is like a non-financial corporate, a bond can be issued by a bank following basically the SEC bonds issuance rules. So we sort it out within the context of the existing law,” he said.
The central bank chief declined to disclose the salient features of the new rules but said the BSP would soon issue a detailed statement.
LTNCD offerings have been recently announced by several banks given new liquidity rules aimed at bolstering a lender’s ability to withstand financial shocks.
Universal and commercial banks, along with select subsidiaries, now have to comply with the Basel III requirement known as the net stable funding ratio ( NSFR), adopted by the Bangko
Sentral’s policymaking Monetary Board as part of ongoing efforts to strengthen the domestic banking industry.
Beginning January 1, 2019, the covered institutions need to maintain an NSFR of 100 percent on both solo and consolidated bases.
To ensure a smooth transition and allow the prompt assessment and calibration of NSFR components, the central bank is adopting an observation period of six months from July 1, 2018 to December 31, 2018.
The NSFR, a measure of a bank’s ability to fund liquidity needs over a year, is part of the Basel III reform package drawn up by international regulators response to the 2007-2008 global financial crisis.