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MANILA, PHILIPPINES (13 January 2004) - The Asian Development Bank (ADB) has approved US$200 million equivalent for a peso swap and financing facility for the Philippines.
The 15-year facility will provide long-term peso-denominated loans to selected banks for onlending to a variety of businesses dependent on peso revenues.
The project will thus help the final borrowers meet their long term funding needs and boost their financial viability by avoiding currency and maturity mismatches.
ADB will source the peso funds for the loans through cross-currency swaps of convertible currency for pesos with the Republic of the Philippines.
The local currency will be loaned to banks at a fixed interest rate without government guarantee. The banks will then onlend to local businesses.
Targeted sectors include infrastructure, transport, manufacturing, small and medium enterprises (SMEs), housing, and expenditures on environmental improvement.
The money can be used to finance leasing and nonbanking finance companies, consumer lending, retailing, modernization and upgrading of production facilities, resolution of nonperforming bank loans, securitization, and bond market development.
On lending to projects involving processing of narcotics, spirits, tobacco, and radioactive materials or environmentally hazardous activities will not be allowed.
At present, long-term fixed-interest rate pesos financing is in short supply in the Philippines, limiting private sector and foreign investment in the country.
"The financing facility will address key constraints in financing infrastructure, industry, SME development, and other sectors crucial to promoting economic growth in the Philippines," says Ajay Sagar, an ADB Senior Structured Finance Specialist.
"Long-term loans denominated in pesos will boost private sector confidence in developing and structuring the financing of investment projects in the country."
Many local companies in the Philippines continue to carry currency and maturity mismatch risks on their balance sheet. It is estimated that financial intermediation exposure denominated in foreign currency in the Philippines runs into billions of dollars.
Also, commercial banks, the main providers of long-term financing, are exposed to asset-liability mismatch risks, as they rely on short-term deposits for long-term financing.
The Financing Facility will support key priorities of the Bangko Sentral ng Pilipinas for the creation of a healthy banking and financial system, including capital markets, that is better equipped to provide for the financial intermediation needs of domestic industries and infrastructure projects.
Participating banks - mainly international banks operating in the Philippines that have a Standard and Poor's long-term rating of BBB or better - can borrow up to $75 million equivalent under the facility.
The international banks are ANZ Banking Group Ltd., Bank of America, N.A., Bank of Tokyo-Mitsubishi Ltd., Citibank, N.A., Deutsche Bank, Hong Kong & Shanghai Banking Corp., Internationale Nederlanden Groep Bk, International Commercial Bank of China, JP Morgan Chase Bank, Mizuho Corporate Bank Ltd., and Standard Chartered Bank. The eligible international bank subsidiaries are ABN Amro Bank, Chinatrust, Maybank Philippines, Inc., and United Overseas Bank Philippines.
They may onlend the peso loans either directly to the targeted borrowers in the eligible sectors or through local banks and other financial intermediaries.
In addition, two local banks, Bank of the Philippine Islands and Metropolitan Bank & Trust Co., may borrow up to $10 million equivalent each from the facility. This limit will not apply if the borrowing is guaranteed by one of the participating international banks.
During the 15-year life of the project, ADB's loans will have terms of up to 15 years, including a suitable grace period, and an interest rate determined in accordance with ADB's policy on pricing local currency loans to private sector borrowers.
More at adb.org/media