The Bangko Sentral ng Pilipinas (BSP) has issued a new memorandum order updating the guidelines and procedures of its medium and long-term rediscounting loans following review of banks access to the liquidity window.

To improve access to rediscounting, the BSP said banks with existing rediscounting lines are eligible to medium and long-term loans “regardless of asset size.” Eligible projects include loans for capital assets expenditure, permanent working capital, housing loans and long-gestating agricultural projects.

The memo reiterates that these agricultural projects with long gestation period are those considered economically productive and will generate revenues only after three years from start of operation. These include projects involving production of abaca, black pepper, cacao, calamansi, cashew, coffee and rambutan which all takes as much as six years to yield revenues. Other long-gestating agricultural projects are durian, lanzones, mango, mangosteen, pomelo, palm oil, pili and jackfruit which would require up to seven or eight years to produce and harvest.

BSP said rediscounted medium and long-term loans will have a maximum maturity of 360 days. “Upon maturity or full payment of the BSP loan, banks will have the option to reapply the loans (provided) that they promissory notes of the borrower remain current and outstanding,” said Rosalinda Dumaliang of BSP’s loans and credit department.

As of end-July, availments of BSP’s rediscounting loans totaled P108.14 billion. The facility is available for commercial, thrift and rural banks. Of the P108.136 billion, 61.8 percent went to commercial credits, three percent to agricultural and industrial credits, and 35.2 percent to other credits consisting of other services (16.6 percent), capital expenditures (12.4 percent), permanent working capital (5.6 percent), housing (0.6 percent) and microfinance (less than 0.1 percent).

Last March, the BSP liberalized its rediscounting facility to allow banks easier access to credit and liquidity from the central bank.

The changes provided more liquidity and credit in the banking system to ensure the orderly functioning of financial markets in the middle of a global financial crisis.

In November 2008, the Monetary Board doubled the BSP rediscounting budget to P40 billion for the purpose of preemptively providing ample liquidity to the system against any possible credit tightness that may develop from the ongoing global financial turmoil.

The Monetary Board increased further the peso rediscounting budget to P60 billion in February this year. The Monetary Board also increased the loan value of all eligible rediscounting papers from 80 percent to 90 percent of the outstanding balance of a borrowing bank’s credit instrument, but not to exceed 70 percent of the appraised value of the underlying collateral.

In addition, the rates for the peso rediscounts were also aligned with the BSP’s overnight reverse repurchase rate, less 50 basis points.

The Monetary Board also raised the ceiling of the non-performing loan (NPL) ratio requirement to ten percentage points above the latest available industry average from the current ceiling of two percentage points above the industry average. This NPL ratio requirement, which is nonetheless still more stringent than the requirement imposed by other government banks, is meant to improve the access to the rediscounting window.