1. BSP Discounts and Policies

2.  The BSP has increased the interest rate it charges banks that avail of discount loans.  The BSP has been pegging the discount rate to the interest rate it charges banks for overnight deposits.  The BSP offers discount loans to help banks in their lending operations.  The discount loans are backed by borrowing bank’s receivable, which serve as collateral.  The amount of loans granted by the BSP is a discounted value of a bank’s collateral.  The BSP extends discounts, loans and advances to banking institutions for liquidity purposes.  The interest rate on discount loans increased by 25 basis points, or from 4.25 percent to 4.50 percent on all maturities.

3.  As a Financial Intermediary, Banks do not only accept deposits but also extend loans. They are the most substantial source of credit not only for individuals and private businesses but also for the government.

4. Example  A manufacturer sells his goods on credit to a wholesaler and a commercial paper evidences the sale. If the manufacturer is in need of funds, he can discount the commercial paper with the bank and the bank in turn rediscounts the same commercial paper with the Central Bank to replenish its funds.

5. Discount  Refers to the amount deducted from the maturity value of an obligation.  The price of using money is, therefore, deducted in advance but the borrower pays the original sum of money borrowed at the end of the term at a specified discount rate.

6. REDISCOUNTING

7. Rediscounting  Special refinancing facility of central banks wherein a financial institution borrows money from the BSP using promissory notes and other loan papers of its borrowers as collateral.  Standing credit facility provided by the BSP to help banks liquefy their position by refinancing the loans they extend to their clients.  Privilege of a qualified bank to obtain loans or advances from the BSP using the eligible papers of its borrowers as collaterals.  It is a standing credit facility provided by the BSP to help banks liquefy their position.

8. BSP allows to control money supply by:  Lower discount rate = Bigger amount the banks can borrow  Higher discount rate = Less amount the banks can borrow  Raising discount rate = Tightens money supply  Increase the amount of money borrowed = Expands money supply

9. Discount Application  Mr. X borrowed P100,ooo from ABC Bank at 22% discount rate. He got only P78,000 because his loan was discounted by 22%, But, He will pay P100,000 upon maturity of his loan  When ABC bank applies for loans from the Banko Sentral, the former supports its loan application with documents or collaterals submitted by its borrowers like Mr. X

10. Rediscount Application  Supposing ABC Bank’s loan from the Banko Sentral is only P100,000 at 20%. The Banko Sentral discounts the loan and therefore ABC Bank gets P80,000. In this case, the action of the Banko Sentral is considered rediscounting

11. Rediscounting Policies  Rediscounted Papers Included in Loan Limit. The liabilities to the bank of borrowers whose papers were rediscounted by banks with the Bangko Sentral shall not be deemed as having been extinguished by the rediscount, but shall be considered as still existing and shall be included in determining the SBL until such papers are paid by the borrowers.

12. How does the Rediscounting Cycle go?  A bank extend loans to end-user borrowers who execute credit instruments.  The bank rediscounts the credit instruments of its end-user borrowers with the BSP.  The BSP lends the bank an amount equivalent to a certain percentage of the face amounts/outstanding balance of the end-user borrower’s credit instrument.

13. Role of Rediscounting in our Monetary System  Rediscounts, discounts, loans and advances, which BSP is authorized to extend to banking institutions, shall be used t influence the volume of credit consistent with its objective of maintaining price stability.  The BSP shall limit the loans it extends to banks during periods of inflation.  The BSP makes full use of the credit operations authorized under its charter whenever there is a need to expand money supply in our monetary system.

14. Types of Rediscount Facility  Peso Rediscount Facility  Exporters’ Dollar and Yen Rediscount Facility (EDYRF)

15. Ineligible loans for Rediscounting  Interbank loans  Extended/Restructured loans  Past due loans  Unsecured loans  Personal consumption loans  Loans to non-bank financial institutions  Loans funded from other borrowing

16. Authorized Types of Operations (a). Commercial credits- BSP may re-discount, discount, buy and sell bills, acceptances, promissory notes and other credit instruments with maturities of not more than 180 days from the date of their rediscount, discount or acquisition by the BSP and resulting from transactions related to: 1. Importation, exportation, purchase or sale of readily saleable goods and products, or their transportation within the Philippines; or 2. Storing of non-perishable goods and products which are duly insured and deposited, under conditions assuring their preservation, in authorized bonded warehouse or in other places approved by the Monetary Board.

17. (b). Production credits - The BSP may rediscount, discount, buy and sell bills, acceptances, promissory notes and other credit instruments having maturities of not more than 360 days from the date of their rediscount, discount or acquisition by the BSP. -Resulting from transactions related to the production or processing of agricultural, animal, mineral, or industrial products. (c). Other credits- Special credit instruments not otherwise re-discountable under the immediately preceding subsections (a) and (b) may be eligible for rediscounting in accordance with rules and regulations which the BSP shall provide funds from non-inflationary sources. (d). Advances - The BSP may grant advances against the following kinds of collaterals for fixed periods which, with the exception of advances against collateral named in clause (4) of the present subsection, shall not exceed 180 days: 1.Gold coins or bullion; 2.Securities representing obligations of the BSP or of other domestic institutions of recognized solvency; 3.The credit instruments to which reference is made in subsection (a) of this section; 4.The credit instruments to which reference is made in subsection (b) of this section, for periods which shall not exceed 360 days. 5.Utilized portions of advances in current amount covered by regular overdraft agreements related to operations included under subsections (a) and (b) of this section, and certified as to amount and liquidity by the institution soliciting the advance;

18. 6. Negotiable treasury bills, certificate of indebtedness, notes and other negotiable obligations of the Government maturing within 3 years from the date of the advance; and 7. Negotiable bonds issued by the Government of the Philippines, by Philippine provincial, city or municipal governments, or by any Philippine Government instrumentality, and having maturities of not more than 10 years from the date of advance. *The rediscounts, discounts, loans and advances made in accordance with the provisions of this section may not be renewed or extended unless extraordinary circumstances fully justify such renewal or extension.

19. Credit Policy - The rediscounts, discounts, loans and advances which the BSP is authorized to extend to banking institutions under the provisions of the present article of this Act shall be used to influence the volume of credit consistent with the objective of price stability. Special Credit Operation - Section 83. Loans for Liquidity Purposes. The BSP may extend loans and advances to banking institutions for a period of not more than 7 days without any collateral for the purpose of providing liquidity to the banking system in times of need. Emergency Credit Operations - Section 84. Emergency Loans and Advances. In periods of national and/or local emergency or of imminent financial panic which directly threaten monetary and banking stability, the Monetary Board may, by a vote of at least 5 of its members, authorize the BSP to grant extraordinary loans or advances to banking institutions secured by assets as defined hereunder. Credit Terms- Section 85. Interest and Rediscount. The BSP shall collect interest and other appropriate charges on all loans and advances it extends, the closure, receivership or liquidations of the debtor-institution notwithstanding. This provision shall apply prospectively.

20. Thank You!!!