THE Bangko Sentral ng Pilipinas (BSP) is proposing changes to its discount window facility (DWF) to make it easier and faster for banks to obtain liquidity support during periods of financial stress.
Amendments to the Manual of Regulations for Banks will streamline requirements and allow greater collateral flexibility for financially sound banks while requiring domestic systemically important institutions to maintain DWF lines and test their access annually.
The DWF is a readily available short-term credit facility that eligible banks can access as a supplementary source of liquidity.
“The facility supports confidence in the banking system and contributes to overall financial stability by providing banks with timely access to liquidity when needed,” the central bank said.
The BSP emphasized that the facility was not intended to replace the banks’ own liquidity risk management practices, including maintaining adequate liquidity buffers and having access to market-based funding sources.
Under the proposed rules, the BSP will simplify the process for banks applying for a DWF line. They may submit applications to the Department of Loans and Credit either in hard copy or electronically, together with the prescribed supporting documents.
The proposed changes also retain financial and prudential requirements for banks seeking approval or renewal of a DWF line.
These include compliance with the minimum capital requirement, applicable risk-based capital adequacy ratio and required reserves against deposit liabilities or deposit substitutes.
Banks must also maintain a positive demand deposit account balance with the BSP and have no past-due obligations or collateral deficiencies.
The proposal also requires banks to maintain sound credit-quality and related-party lending indicators as part of eligibility requirements.
For newly merged or consolidated banks, the BSP may grant a temporary DWF line of up to 50 percent of adjusted capital for 180 days while the central bank awaits required reports or data. This may be renewed for another 180 days or until the required information becomes available, whichever comes earlier, subject to specified conditions.
The central bank also encourages banks to preposition eligible credit instruments with the BSP before they actually need to draw liquidity. It said all end-user borrowers’ credit instruments that banks intend to rediscount would be subject to pre-credit verification.
Banks may submit these instruments to the BSP in advance so that the verification process can be completed ahead of a liquidity need.
“This will facilitate the completion of pre-credit verification ahead of liquidity need and expedite the processing of eventual availment,” the central bank said.
Meanwhile, banks that wish to preposition their borrowers’ credit instruments will be required to submit a letter of intent and allow the BSP, through its Department of Loans and Credit, to conduct the necessary pre-credit verification.
The proposal allows the BSP to accept credit instruments covering economic activities, subject to exclusions.
These include interbank loans, extended or restructured loans, past-due loans, unsecured loans, personal consumption loans, loans to nonbank financial institutions and loans funded from other borrowings, such as those from government financial institutions or multilateral agencies.
The credit instruments must also contain the express consent of the end-user borrower allowing the bank to endorse the instrument to the BSP and permitting the latter to directly collect from the borrower or enforce the underlying collateral when applicable.
NIÑA MYKA PAULINE ARCEO
