MANILA, Philippines — Philippine companies, particularly banks, should tap the bond market to raise fresh capital as this would provide a stable source of funds that can be issued quickly to a large investor base and at a lower cost.
In a seminar titled “Philippine Bank: Tapping the Capital Markets” organized by the Capital Markets Development Foundation Inc. and Philippine Rating Services Corp. (PhilRatings), BDO Capital & Investment Corp. president Eduardo Francisco said one way to support the Bangko Sentral ng Pilipinas (BSP)’s goal of deepening the capital market is for local banks to issue more bonds.
He said bonds will allow banks to diversify funding with a new type of security and tap long term funding.
According to Francisco, obtaining regulatory approvals will be easier and faster for banks as bonds are exempt securities under the Securities Regulation Code.
“Due to these reductions in regulatory hurdles, banks are generally expected to benefit from a faster transaction timetable in contrast to regular bond issuers,” he said.
Bank of Commerce president Michelangelo Aguilar, on his end, said bonds allow banks to match long-term assets with long-term liabilities.
It also allows banks to lengthen the tenor of liabilities—including issuances in various tenors to help asset-liability management.
Aguilar said issuing bonds can be done quickly and provides access to a wide investor base that includes retail and institutional investors. A bank also has the advantage of issuing in various tenors which can help asset-liability management.
More importantly, the reserve requirement for bonds is at three percent versus 9.5 percent for deposits, thus lowering the cost of funding.
BSP Assistant Governor Johnny Noe Ravalo said one of the regulator’s long-term goals is to have a diversified funding source, ensuring that the market will remain liquid even when the banking industry or any other sector is undergoing financial or economic challenges.
The BSP is encouraging the participation of other businesses and institutions in the bond market, noting that the country’s corporate bonds are predominantly issued by top-notch companies, most of which have a PRS Aaa rating.
This is seen as a very limited market given that 99.59 percent of the country’s business establishments are micro, small and medium enterprises.
PhilRatings vice president and head of credit rating for financial institutions Lourdes Tabarina, meanwhile, cited the uses of a credit rating as a tool to raise funds, as well as to market and benchmark versus peers and assess the internal performance of the company.
She said investors, regulators and the public may also use credit ratings as a mechanism to evaluate and monitor specific companies or investments.
PhilRatings, as a credit rating agency accredited by the Securities and Exchange Commission and recognized by the BSP, has rated 14 banks to date, from rural banks to universal banks, starting with its first bank rating in 2004.