BSP cuts bank reserves for bonds by half to 3%

The Bangko Sentral ng Pilipinas (BSP) slashed by half the reserve requirement ratio (RRR) for bonds issued by banks as part of its commitment to contribute to the deepening of the local debt market.

The central bank approved the reduction of the RRR for bonds issued by banks and quasi banks to three percent from six percent effective Nov. 1.

The BSP said the lower bank reserves on bond issuances would reduce the bond issuers’ intermediation cost that could be passed on to the holders of the securities.

“The adjustment in the required reserves for bonds complements the BSP’s earlier policy issuance streamlining the rules and requirements for the issuance of debt instruments by banks and quasi banks,” it said.

The BSP said the initiatives are intended to incentivize banks to tap the domestic bond market as part of its liquidity management.

The BSP said the revised rate for bonds is lower than the required reserves of other debt instruments issued by banks such as long-term negotiable certificates of time deposits (LTNCDs) currently pegged at four percent.

Banks have been issuing bonds, fixed notes and LTNCDs to raise funds to beef up capital and finance aggressive expansion programs.

Data from the Philippine Dealing and Exchange Corp. (PDEx) showed banks

have raised P256 billion via the issuance of bonds, fixed notes and LTNCDs so far this year.

Banks that have issued bonds and notes this year include BDO Unibank with P35 billion, China Bank with P30 billion, Metropolitan Bank & Trust Co. with P56.75 billion, Philippine National Bank with P13.87 billion, Philippine Savings Bank with P6.3 billion, Rizal Commercial Banking Corp. with P23 billion, Security Bank with P18 billion, and Union Bank of the Philippines with P5.8 billion.

Banks that have issued LTNCDs include BDO with P13.82 billion, PNB with P12.82 billion and Security Bank with P6.06 billion.

Banks have raised P441 billion via the issuance of bonds, notes, and LTNCDs at the PDEx platform.

The issuance of LTNCDs has been an effective way for banks to raise cost-effective funding, while offering a new investment product to their own deposit base, most of whom are looking for long term assets that provide higher yields than traditional time deposits.

However, banks have been shifting to the issuance of bonds or commercial papers instead of LTNCDs as a cheaper alternative funding source.