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BSP Enhances Rules to Facilitate Bank Bond Issuance


The Monetary Board (MB) approved the enhanced rules for the issuance of bonds and commercial papers (CPs) in line with the thrust of the Bangko Sentral to contribute to the development of the domestic capital market. The new rules set out the eligibility criteria for universal/commercial banks (U/KBs) and quasi-banks (QBs) to issue said instruments and require enrolment of the bonds in a market that is organized in accordance with the Securities and Exchange Commission’s (SEC) rules and regulations.  The enhanced rules aim to promote the objectives of an orderly and efficiently functioning market for debt securities and to protect the interest of the investing public. 

The current regulation under Circular No. 975 requires U/KBs and QBs to comply with Republic Act (R.A.) No. 8799 or the Securities Regulations Code (SRC) and its implementing rules and regulations in issuing bonds and CPs.  In addition to this requirement, the new policy prescribes the eligibility criteria for U/KBs and QBs to issue bonds/CPs.  The set of criteria is aligned with the licensing framework of the Bangko Sentral issued under Circular No. 947 as follows: (i) CAMELS composite rating of at least "3" and a "Management" rating of not lower than "3", and the QB must have a RAS rating of at least "Acceptable"; (ii) no major supervisory concerns on governance, risk management systems, internal controls, and compliance system; and (iii) complied with the directives of the Bangko Sentral, and is not subject of any enforcement action.  The enhanced policy also requires U/KBs and QBs to enroll or trade the bonds in a market recognized by the SEC to promote price discovery and transparency.

The issuance of bonds/CPs does not need prior approval of the Bangko Sentral.  U/KBs and QBs only need to submit a certification of compliance with the prudential criteria and other supporting documents reflecting that the debt issuance has undergone the required process of approval by the board of directors and that it has been considered in the overall funding plan of the institution. In addition, U/KBs and QBs should submit a written undertaking to enroll and/or trade the bonds in a market which is organized in accordance with the SEC rules and regulations. 

Similar to the BSP’s requirement on the issuance of Long-term Negotiable Certificates of Time Deposits (LTNCTDs), the BSP prohibits the issuing bank/QB, including its related parties, except its trust departments or trust entities, from holding and acting as a market maker of the bank’s/QB’s listed bonds or CPs to prevent possible undue price influence and backdoor pre-termination.  Likewise, the registry bank, including the underwriter/arranger of the issuance, is required to be an independent third party.

Meanwhile, the BSP will continue to apply a six (6) 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.

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