Bank bond issuance rules relaxed by Bangko Sentral
Eligible banks will no longer need prior regulatory approval when issuing bonds and commercial papers as rules have been enhanced by the Bangko Sentral ng Pilipinas (BSP) in line with its aim to develop the domestic capital market.
“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 central bank announced in a statement released Friday night.
“The issuance of bonds/CPs does not need prior approval of the Bangko Sentral,” it added.
The BSP explained that that universal/commercial banks (U/KBs) and quasi-banks (QBs) would only need to prove their eligibility and that the debt issuance had been approved by their respective boards as a fund-raising activity.
“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,” it said.
The BSP also noted that banks should enroll or trade the bonds in a Securities and Exchange Commission-recognized market “to promote price discovery and transparency.”
As for eligibility, universal and commercial banks must have a Camels composite rating of at least “3” and a
“Management” rating of not lower than “3.” Camels is an international ratings system that gauges banks according to capital, asset, management, earnings, liquidity and sensitivity to market risk.
Quasi-banks, meanwhile, must have a Risk Assessment System rating of at least “Acceptable.”
Also, universal/commercial banks and quasi-banks must have “no major supervisory concerns on governance, risk management systems, internal controls, and compliance system … complied with the directives of the Bangko Sentral, and is not subject of any enforcement action,” according to the BSP.
Issuing banks — including related parties except its trust departments or trust entities — are barred from holding and acting as a market maker of the listed bonds or commercial papers “to prevent possible undue price influence and backdoor pre-termination,” it added.
“Likewise, the registry bank, including the underwriter/arranger of the issuance, is required to be an independent third party,” the central bank stressed.
Meanwhile, the BSP said it would continue to apply a 6 percent reserve requirement rate for bonds, which are considered as deposit substitute instruments.
The rate, it pointed out, is lower than those required for other deposit substitute instruments and the long-tern negotiable certificates of time deposits or LTNCTDs.
Bangko Sentral Governor Nestor Espenilla Jr. earlier said that the relaxing of bond issuance rules could wean banks away from a preference for LTNCTDs as a means to raise long-term funding.
“It can be costlier to do LTNCDs down the road,” he added.
LTNCDs are similar to time deposits but have longer maturities and higher yields. They are negotiable and are insured with the Philippine Deposit Insurance Corp. up to P500,000 per depositor.
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