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Monetary Board Liberalizes BSP Rediscounting Policy


The Monetary Board has decided to liberalize access to the BSP’s regular rediscounting facility to include all sectors of the economy. The move was among several changes aimed at refocusing the use of the rediscounting window from a selective credit policy instrument to a monetary policy instrument that complements the BSP’s open-market operations in managing liquidity in the financial system. Rediscounting is a facility that helps banks meet temporary liquidity needs by refinancing the loans that they extend to clients. It also allows the BSP to influence the reserves held by banks and thereby affect the supply of money in the economy.

In line with the liberalization of the rediscounting facility, banks’ short-term loans to real estate developers for the construction of socialized and low-cost housing units have been made eligible for rediscounting with the BSP. This applies to working capital loans of developers intended for the construction and marketing of housing units and covered by promissory notes with a maturity not exceeding 360 days. The Monetary Board decision is consistent with the provisions of the Comprehensive and Integrated Shelter Financing Act of 1994 (R.A. No. 7835), which mandates the BSP to make available its rediscounting facilities to institutions providing financing for socialized and low-cost housing.

The removal of the selective credit nature of rediscounting is consistent with the BSP’s adoption of price stability as the dominant objective of monetary policy. The approved amendments to the BSP rediscounting policy are as follows: (1) expansion of the rediscounting facility to a more general type of facility that will be available to all sectors, but excluding certain types of loans such as interbank loans, DOSRI, extended/restructured loans, past due loans, unsecured loans (other than microfinance loans), personal consumption loans, and loans for capital asset acquisition; (2) standardization of eligibility requirements and rediscounting ceilings across all types of banks; and (3) adjustment of the rediscounting rate to reflect actual market rates on comparable maturities.

Other changes in the terms and conditions for banks’ availment of the rediscounting facility include: (1) the setting up of a rediscounting line that will represent the maximum amount of credit that may be availed of by the borrower-bank; (2) the standardization of the rediscounting ceiling to 100 percent of net worth across all types of banks over the next five years; (3) the standardization of the loan value of eligible papers to 80 percent of the outstanding balance; (4) the standardization of liquidated damages for past due loans to 5 percent for all types of banks; and (5) imposition of sanctions and penalties for violation of rediscounting rules.

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