Analysts see more banks launching bond offerings


THE banking industry is expected to launch more bond offerings in the coming months as a way to diversify funding sources amid the robust demand and favorable market conditions.

Financial institutions have been maximizing the opportunities in the bond market recently because of low borrowing costs and healthy investor sentiment on the back of the country’s good credit rating, analysts said.

RCBC Chief Economist Michael L. Ricafort said that the low interest rates—achieved after a series of monetary policy easing by the Bangko Sentral ng Pilipinas—are encouraging banks to raise funds via debt securities.

“Record-low interest rates …have made borrowings by banks through the bond market more compelling in [order] to further increase…their lending…portfolio as well as to increase other investment activities as well, in able to generate more interest income and other investment income,” he
explained.

The Monetary Board last month trimmed the interest rate on the Central Bank’s overnight reverse repurchase facility by 50 bp to 2.25 percent, bringing deposit and lending rates to 1.75 percent and 2.75 percent, respectively. The new policy rates were effective beginning June 26.

Ricafort added that the trimming of policy rates made the “bond market more attractive amid the search for higher yields by investors, amid near zero or negative interest rates in some developed countries, as a source of higher yielding outlets for excess funds by global fund managers/investors.”

The low interest rates could also boost market sentiment as this can encourage investment and create more business and economic activities which can then lead to more jobs, Ricafort said.

While it was “not directly related,” Unionbank Chief Economist Ruben Carlo O. Asuncion said the “still robust and healthy” sovereign rating of the Philippines has been pushing banks to tap the bond market for funds.

Japan Credit Rating Agency upgraded its ratings for the country from “BBB+” to “A-” and assigned a stable outlook in June. This means the rating is not expected to change in the next 12 to 18 months.

The debt watcher credited the improved rating to the country’s resilient position amid the challenges brought about by the coronavirus pandemic.

“This positive somehow translates to firms in the economy, and the local banks are not different from this general view,” Asuncion said.

S&P Global Ratings and Fitch Ratings also gave the country a stable outlook, pinning the ratings at “BBB+” and “BBB,” respectively.

The Unionbank economist said that it was indeed advisable to participate in the bond market now given the favorable environment, but he shared that banks—or companies, in general—should also be able to look into other means of fundraising.

“[T]here should be a mix of approaches depending on the goals of the banks and other companies,” he said.

The Bankers Association of the Philippines (BAP) earlier suggested that capital markets could be accessed by the banks to raise funds and improve their capitalization amid the pandemic.

“With good credit rating, banks may likewise opt to beef up their capital by raising funds through the capital markets,” BAP told this newspaper recently.

According to a study by First Metro Investment Corp. and University of Asia and the Pacific, corporate bonds are seen bouncing back during the second half after slowing down in April. The report noted that most of the firms are refinancing existing debts by then since many have held off their expansion plans.

Several banks have been braving the debt market recently to raise funds, including Security Bank Corp. and Bank of the Philippine Islands.

Just this week, Rizal Commercial Banking Corp., Metropolitan Bank & Trust Co. and BDO Unibank Inc. disclosed their bond offering plans. All issued bonds already earlier this year.

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