central bank – Future Komp http://futurekomp.net/ Sat, 19 Mar 2022 13:21:07 +0000 en-US hourly 1 https://wordpress.org/?v=5.9.3 https://futurekomp.net/wp-content/uploads/2021/03/futurekomp-icon-70x70.png central bank – Future Komp http://futurekomp.net/ 32 32 Gibo urges public banks to increase agricultural loans https://futurekomp.net/gibo-urges-public-banks-to-increase-agricultural-loans/ Sat, 19 Mar 2022 13:21:07 +0000 https://futurekomp.net/gibo-urges-public-banks-to-increase-agricultural-loans/ Senate candidate and former Secretary of Defense Gilbert ‘Gibo’ Teodoro. CONTRIBUTED PHOTO

SENATE candidate and former defense chief Gilbert “Gibo” Teodoro wants the two public lenders to increase their support for the agricultural sector.

In a statement on Saturday, Teodoro said he wanted to review the policies of the Land Bank of the Philippines (LandBank) and the Development Bank of the Philippines (DBP) as their primary duty is to help the country’s agriculture develop.

“Let’s review the policy of the Landbanks because they are there to really support agriculture. In the same way, the original charter of the DBP was not for profitability in banking terms but support for the economy for industries long-term growth,” Teodoro pointed out.

One of his pleas is to support the agricultural sector to achieve food sustainability in the country.

“Now these banks – both Landbank and DBP – have had their mandates and charter changed, so much so that they can compete with commercial banks,” Teodoro added.

Citing data from the Bangko Sentral ng Pilipinas, the former Tarlac lawmaker said loans disbursed to the agricultural sector and land reform by banks in 2021 amounted to 852 billion pesos, less than the minimum required for loans to the sector at 1,997 trillion pesos.

The combined allocation for agriculture and land reform, at 10.65 percent of total loanable funds of 7.99 trillion pesos, was significantly lower than the 25 percent specified by Republic Act 10000, or 2009 on the agro-agricultural reform credit”.

Farmers and beneficiaries of the agricultural reform must each obtain 15% and 10% respectively of the banks’ total loan portfolio.

However, the actual loan percentages allocated to target borrowers were only 9.71% and 0.94%, respectively.

The central bank has expressed hope that Congress will make amending the Agri-Agra law a top priority before forming a new administration to take over later this year.


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BSP sets 4% credit allocation for innovation development – Manila Bulletin https://futurekomp.net/bsp-sets-4-credit-allocation-for-innovation-development-manila-bulletin/ Mon, 14 Mar 2022 09:40:00 +0000 https://futurekomp.net/bsp-sets-4-credit-allocation-for-innovation-development-manila-bulletin/

The Bangko Sentral ng Pilipinas (BSP) has published proposed rules to guide banks in allocating at least four percent of their loanable funds to the development of innovation for the benefit of micro, small and medium-sized enterprises (MSMEs) and startups.

The BSP in the draft circular stated that the loanable funds for the innovation development credit will be calculated in the same way as the calculation of the loanable funds for agriculture and the land reform credit.

The guidelines for mandatory crediting followed the provisions of Section 23 of Republic Act No. 11293 or the Philippine Innovation Act which was enacted in 2019 and its rules and regulations. ‘application.

The BSP said qualified borrowers for the Innovation Development Credit are MSMEs, startups, innovation centers and business incubators, as well as other entities that support the development of new technologies and innovative goods or services.

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“Banks must set aside at least four percent (4%) of their total loanable funds for innovation development credit,” the central bank said.

However, newly established banks will be exempted from the mandatory innovation development credit for a period of three years from the date of commencement of operations, the BSP said. These are banks that commenced operations after August 6, 2019. The circular will also not include banks formed through the acquisition/purchase of voting shares of an existing national bank or the merger or consolidation of banks.

The credit quota will be reviewed jointly by the National Innovation Council and BSP every three years.

“The Bangko Sentral recognizes that innovation plays an important role in driving inclusive development and promoting the growth and national competitiveness of micro, small and medium enterprises,” BSP said in the draft. circular, currently circulated among the banks. “Innovation encourages creative thinking, which in turn increases productivity and economic output. The banking system

plays a crucial role in providing credit needed to support the development of new technologies and other innovation-related activities,” the BSP said.

All banks are required to submit a quarterly report to monitor their compliance. The BSP will impose a penalty of half percent or 0.5 percent of the amount of non-compliance or sub-compliance.

About 90% of the penalties that BSP will collect will go to its “innovation fund”, while the remaining 10% is intended for administrative expenses. The fund, which will be administered by the National Innovation Council, will be set up to strengthen entrepreneurship and companies engaged in developing innovative solutions, the BSP said.

The proposed circular has a feedback deadline of March 25, by which time bank suggestions and comments should be submitted to the BSP.

The BSP defines innovation as “the creation of new ideas that results in the development of new or improved products, processes, or services that are then released or transferred to markets.” The Innovation Development Credit includes loans and other financing activities for the development of new technologies, product innovation, process innovation, organizational innovation and marketing innovation.

The draft circular noted that direct compliance means loans granted to qualified borrowers after the enactment of the law.

The BSP will also enable alternative compliance to compulsory credit for the development of innovation, such as: loans or investments in digital/technology platforms for MSMEs for e-commerce; and loans or investments in supply chain finance companies serving the MSME sector.

Other means for banks to comply include: investments in bonds issued by the Development Bank of the Philippines and the Land Bank of the Philippines, the proceeds of which will be used exclusively for on-lending for innovation development; and investment in other debt securities issued by banks and other blue-chip financial and non-financial corporations, the proceeds of which will be used for the development of new technologies, product innovation, process innovation, organizational innovation and marketing innovation.

BSP stated that investment in green/social/sustainable bonds will also be permitted as a compliance alternative if the product is used in one of the following priority innovation areas: food security and sustainable agriculture and natural resources; blue economy; education and academia, including STEM education; health; safe, clean, renewable and reliable energy; climate change and disaster resilience; Infrastructure; human capital development; Digital Economy; and transportation services; and investing in startup stocks.

Banks have an existing compulsory credit allocation of eight percent of their loanable funds for micro and small enterprises and two percent for medium enterprises under RD No. 6977 for the development of the small and medium sector businesses.

At the end of 2021, based on BSP data, banks’ compliance with RA No. 6977 is only 2.08% for micro and small enterprises. This translates into loans of 178.14 billion pesos for micro and small enterprises when banks should have loaned 685.60 billion pesos.

However, banks had a compliance rate of 3.33% for medium-sized enterprises, more than the required 2%, releasing 284.99 billion pesos last year against a required minimum of 171.42 billion pesos.

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The Fed’s Hike Cycle Will Begin https://futurekomp.net/the-feds-hike-cycle-will-begin/ Sun, 13 Mar 2022 08:13:00 +0000 https://futurekomp.net/the-feds-hike-cycle-will-begin/

There are several high-frequency data points that often provide trading fodder for short-term participants, including the US , , , and . Eurozone sees January and numbers. Japan is good for February and . China gives February readings on , , and . However, the meetings of the central banks take oxygen: the , the , and the . Two central banks from emerging markets meet and will also attract attention: Turkey and .

Federal Reserve: The FOMC decision has three dimensions. The first is rising rates; the tightening cycle will begin. A 25 basis point move was well telegraphed. Prior to the US warning on Feb. 11, the market had discounted an 80% chance of a 50 basis point move. We’re not convinced the Fed’s leadership was there in the first place, but clearly it isn’t now. That said, Chairman Powell is preserving maximum functioning and has explicitly not taken 50 basis point moves off the table in this cycle. The Fed funds futures strip reflects this. The FOMC may not deliver the 100bp hikes the hawks want in the first half, but the market priced it in by the end of July.

Second, there are the forward guidance on its balance sheet. Powell appeared to suggest in his recent congressional testimony that some additional details about his strategy would be represented. In any case, it seems likely that the Fed will take the passive approach and allow the balance sheet to contract, which means extinguishing some reserves by not reinvesting all maturing products. Logan, who heads the Fed’s market operations, recently said Treasury major payments (maturing issues) ranged from about $40 billion to $150 billion per month over the next few years and averaged $80 billion. of dollars. At the same time, there is an average of around $25 billion worth of MBS, also maturing in one month over the next few years.

The third is the summary of economic projections, the dot chart. Individual projections of the target federal funds rate are attracting the most attention. In mid-December, 10 of 18 officials expected 75 bps of hikes to be appropriate this year. Five others were aiming for 50 basis points. There was a dove that thought only one rate hike should be delivered this year. The two most hawkish “points” anticipated a 100 basis point tightening.

Also take into account the terminal tariff. In December, five officials expected the federal funds target at the end of 2024 to be above the median considered at the long-term equilibrium rate of 2.5%. The median is expected to rise 50 bps and possibly 75 bps this year. Recall that before the virus hit, the Fed had cut its rates three times to 1.50%-1.75% (June, July and October). The swap market sees Fed front loading tightening and peaking at around 2% by the end of 2023.

Finally, be aware that following recent meetings, the equity market initially rallied on the statement. However, the market recently reversed during Powell’s press conference. It seems to sound more hawkish than the statement. We are not convinced that is the case. It felt a little more like a Rorschach test of Powell pursuing maximum operational flexibility. The president also acknowledged weaker growth in the first quarter after a 7.1% increase in inventories in the fourth quarter. As in Q3-21 (growth slowed from 6.7% to 2.3%), the slowdown in Q1 is probably not the prelude to another weaker quarter. Instead, growth is expected to be 3.5% to 4.0% in the second quarter before slowing in the second half to around 2.7%, according to the median forecast from a Bloomberg survey. Downside risks appear to be increasing.

Bank of England: The most likely scenario is for the Bank of England to deliver a 25bp hike on March 17th. On the eve of the US warning that Russia was preparing to attack Ukraine, the swap market had a little over 60% chance of a 50bp rise. raise. Ratings gradually fell, and at one point early in the month the market even questioned a 25 basis point rise. The MPC vote was 5-4 in favor of 25 basis points in February, with Governor Bailey casting the deciding vote. The market has just over 130 bps of upside discounted over the next six months. After that, the swap market has about 40 basis points of tightening before peaking.

The BOE’s balance sheet is expected to shrink this month as maturing assets of GBP 28 billion will not be reinvested. When the base rate hits 1.0%, probably in May, the BOE could begin to reduce the balance sheet by divesting its holdings. However, officials don’t seem to be in a rush to take the more active route. Indeed, with rising energy prices, and more broadly inflation, rising NHS taxes (April 1) and rapidly rising rates (without long term fixed rate mortgages), the economy will be stretched to the point of possible breaking. Chancellor Sunak’s spring statement (March 23) will be delivered amid growing doubts that fiscal rules will actually be adhered to.

The UK will release February figures and January data a few days before the BOE meeting. Average three-month (year-over-year) earnings growth has halved since peaking at 8.8% last June. It had fallen to 4.2% in November before rising to 4.3% at the end of 2021. increased by 5.5% in January and is still accelerating strongly. Real profit growth is collapsing. It is reasonable to expect that consumption will not be far behind. And the Tories looked vulnerable ahead of May’s local elections even before the sharp economic deterioration took place.

Bank of Japan: Around the time the Bank of Japan meeting kicks off on March 17, the February CPI will be released. Headline inflation will be boosted by soaring energy and food prices. After rising 0.5% year over year in January, an acceleration to 1.0% should come as no surprise. The , which excludes fresh food prices, is also expected to ease from January’s 0.2% pace to 0.5%-0.6%. The real inflationary impulse comes from the exclusion of fresh food and energy. It will most likely remain well below zero after January’s reading of -1.1%.

In April, there will be more upward pressure on the core metrics as mobile charges that were cut sharply last year fall out of the 12-month comparison. This could be particularly acute and has the potential to lift the headline CPI measure by more than one percentage point. Although the BOJ has little to do or say, Governor Kuroda could get ahead; acknowledging (removing or minimizing the element of surprise) and explaining why this alone will not divert the central bank from its course.

Last month, the BOJ showed it was ready to defend the 25bp Yield-Curve-Control cap on yield. The bond purchases seen since the beginning of the war pushed the yield up a little to 0.15%. The market is likely to question the BOJ’s resolve amid rising global rates and accelerating headline inflation. Meanwhile, political (Upper House elections in late July and government approval ratings are low) and economic considerations suggest Prime Minister Kishida could cobble together a new spending bill, even if he reallocates and redefines priorities of unspent funds from previous budgets. .

Brazil and Turkey:

Banco do Brasil meets on March 16. The economy grew 0.5% in Q4-21, slightly better than expected, and followed two quarters of small contractions. However, the economy seems fragile at the start of the year. The manufacturing sector, in particular, seems softer. The level was below the 50 boom/bust level for the fourth straight month in February and fell 2.4% in January, the biggest decline since March 2021.

The is the strongest currency in the world here at the start of 2022, up 10%. Its strength seems to come from two considerations. First, it experiences a favorable terms-of-trade shock from soaring food and industrial commodity prices. The 12-month moving average is about $1 billion a month higher than a year ago. Second, high interest rates and exposure to commodities attract foreign portfolio investment.

The central bank was one of the most aggressive in raising rates. The Selic rate started last year at 2.0% and ended at 9.25%. The pace of increases started at 75 basis points from March to June 2021 (three times) and increased to 100 basis points (twice) in the third quarter. The pace accelerated to 150bps in Q4 21 and February (three times). The Selic rate stands at 10.75%. IPCA inflation is close to 10.50%. Most are expecting a 100 basis point increase at this week’s meeting. The swap market is now seeing the peak of the Selic later this year, near 13.5%.

Turkey’s central bank meets on March 17. He is unlikely to change his 14% one-week repo rate. Soaring energy and food prices pose new challenges to Turkey’s beleaguered economy. is already close to 54.5% (core 44%). The rate is around 9.75% so far this year and probably needs to drop 4.0% to 5% per month to compensate for the inflation differential. Or, to put it another way, with a nominal depreciation of less than 5%, the lira would appreciate in real terms. At the same time, rising food and energy prices will weaken growth even if it boosts inflation, and the weaker pound is exacerbating price pressures. It is caught in a vicious circle, which would be difficult even for the best leaders with the strongest institutions. Moreover, the beneficial impact on the external imbalance of the past depreciation of the lira will probably be offset by the surge in food and energy prices. Social tensions are likely to increase.

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Banks miss 2021 lending quota for land reform and agrarian sectors https://futurekomp.net/banks-miss-2021-lending-quota-for-land-reform-and-agrarian-sectors/ Wed, 09 Mar 2022 16:31:17 +0000 https://futurekomp.net/banks-miss-2021-lending-quota-for-land-reform-and-agrarian-sectors/
PHOTO BY CINDY S. REYES, DEPARTMENT OF AGRICULTURE – PHILIPPINE RICE RESEARCH INSTITUTE

PHILIPPINE BANKS failed to meet the minimumcompulsory loans for agriculture and agrarian reform (agri-agra) sectors in 2021, according to the central bank.

Lenders disbursed loans worth 851.76 billion pesos at the end of December in these sectors, according to preliminary data from Bangko Sentral ng Pilipinas (BSP).

This is below the required minimum credit allocation of 1,997 billion pesos against their loanable funds worth 7,992 billion pesos.

Under Republic Act No. 10000 or the Agricultural Credit Reform Act of 2009, banks must allocate 10% of their total loanable funds to the land reform sector and 15% to agriculture.

Credit extended to the agricultural sector reached P776.436 billion in 2021, only 9.71% of their total loanable funds.

Large savings and rural banks Ifloans financed to the agricultural sector amounting to P740.281 billion, P18.141 billion and P18.014 billion respectively.

On the other hand, loans to the agrarian reform sector amounted to 75.319 billion pesos, or 0.94% of their total loanable funds.

Loans granted by large savings banks and rural banks reached 61.584 billion pesos, 3.194 billion pesos and 10.541 billion pesos respectively, all below the minimum requirement of 10%.

BSP hopes that Congress, which is on an election break, will prioritize changes to the Agri-Agra Act.

A bicameral conference committee will still have to reconcile any conflapplicable provisions of the measures approved by the House of Representatives and the Senate.

Once enacted, the amendments will expand the range of credits considered in the quota to include the broader supply chain process in the agricultural sector.

MSME LOANS
Banks also failed to meet the small business lending quota required by law, according to separate BSP data.

Loans made by the Philippine banking sector amounted to P463.134 billion, or 5.41% of their total loan portfolio of P8.57 trillion.

This is less than the 10% allowance required for small businesses under Republic Act No. 6977.ers to allocate 8% and 2% of their portfolios to micro and small enterprises (MSEs) and medium-sized enterprises respectively.

Year over year, the amount of loans to small businesses increased by 6.3%.

Loans to MSEs granted by banks amounted to 178.143 billion pesos, only 2.08% of their total loan portfolio and well below the minimum requirement of 8% for the sector.

On the other hand, credit to medium-sized enterprises amounted to 284.991 billion pesos, representing 3.33% of their portfolio and fulfilling the 2% quota.

Banks have long chosen to incur penalties for non-compliance instead of assuming the risks associated with small business lending.

To encourage small business lending, the BSP in 2020 allowed banks to count MSME lending as an alternative compliance to reserves. These borrowings also received a reduced credit risk weighting. — Luz Wendy T. Noble

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Proposed changes to Agri-Agra act are a loophole – FFF https://futurekomp.net/proposed-changes-to-agri-agra-act-are-a-loophole-fff/ Sun, 06 Mar 2022 00:33:59 +0000 https://futurekomp.net/proposed-changes-to-agri-agra-act-are-a-loophole-fff/

The Free Farmers Group Federation (FFF) has published its analysis and identified ‘gaps’ in either version of the proposed amendments to Republic Act (RA) 10000 or the Agri-Agra Credit Reform Act of 2009 .

It comes as Congress prepares to create a bicameral committee to reconcile Senate and House bills to change the law as soon as possible.

RA 10000 requires banks and other formal credit institutions to allocate at least 25% of their loanable funds to agricultural credit and land reform, with at least 10% reserved for land reform beneficiaries (ARBs).

Both House Bill 6134 and Senate Bill 2494 seek to “promote rural development by improving access of rural communities and farming and fishing households to financial services and programs.”

“Unfortunately, the two versions do not really address the causes of low compliance by banks with Agri-Agra mandates. They also do not guarantee that ARBs and smallholder farmers will have easier access to formal credit” , the FFF said in a statement on Friday.

Instead, the group said the proposed changes to RA 10000 will make it easier for banks to “compliance” with mandatory credit allocations, while avoiding penalties and not significantly increasing their already very low exposure to credit. loans to small farmers.

The proposed changes include that banks will still be required to allocate 25% of their loanable funds to agriculture, but they will get an expanded menu of compliance options.

The two bills also remove the mandatory 10% allowance for ARBs, potentially allowing banks not to lend to small farmers while still complying with the law, the FFF said.

“In particular, the proposed amendments will count loans to small farmers at 10 times their value for the purposes of crediting bank compliance. This could actually discourage, rather than promote, rural credit,” he added.

HB 6134 will establish an agriculture and fisheries finance and capacity building committee to oversee the use of penalties after deducting 10% of Bangko Sentral ng Pilipinas overhead.

However, the FFF pointed out that the bill does not mention anything specific, except for capacity building programs for smallholder farmers’ organizations and beneficiaries.

SB 2494 is more problematic, the group said. In addition to compensating the central bank also with a 10% administrative fee, it rewards the national government with 25% of all collections, “for doing nothing”, he noted.

Of the remainder, 35 percent will be “allocated to the Department of Agrarian Reform (DAR) for the titling and severance of land holdings covered by the collective certificates of land ownership”. “Even though it is a regular function of the DAR that should be funded as part of its annual budget by Congress.”

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Sanctions put Russia in an economic stranglehold and the West has even more options, experts say https://futurekomp.net/sanctions-put-russia-in-an-economic-stranglehold-and-the-west-has-even-more-options-experts-say/ Tue, 01 Mar 2022 00:15:35 +0000 https://futurekomp.net/sanctions-put-russia-in-an-economic-stranglehold-and-the-west-has-even-more-options-experts-say/

“It’s a bit like a massive aerial bombardment (in financial terms)”

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The Russian currency plunged and its stock market seized up on Monday after Canada and other G7 countries stepped up financial sanctions aimed at pressuring Moscow to back down from its invasion of Ukraine.

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The measures targeting Russia’s central bank have frozen a significant portion of the country’s $650 billion in reserves, preventing the government from using those emergency funds to prop up its economy against Western onslaught, analysts said.

On Monday, Deputy Prime Minister Chrystia Freeland said that all Canadian financial institutions were barred from engaging in any dealings with the Russian Central Bank, and that Canada was also imposing an asset freeze and a trading ban. with Russian sovereign wealth funds.

Additionally, Prime Minister Justin Trudeau said Canada would ban imports of crude oil from Russia. Canada imported energy products from Russia worth about $290 million from Russia in 2021, according to Statistics Canada, with Quebec and Newfoundland and Labrador accounting for nearly all.

While not a large amount compared to other countries, the bans and bans come on top of international sanctions triggered in recent days, including a statement over the weekend that some Russian banks would cut SWIFT , global interbank messaging. platform that facilitates most international transactions.

And observers say the West still has more economic firepower to deploy if needed.

“It’s a bit like a massive aerial bombardment (in financial terms),” said Mark Warner, an international competition, trade and investment lawyer at MAAW Law.

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The risk that Russia could be further isolated from the global economy accelerated Monday’s run on the country’s currency.

The rouble, which has been under pressure since before Russia followed through on its threat to invade Ukraine last week, fell to its lowest level on record. It sank more than 30% after the leaders of Canada, the European Commission, France, Germany, Italy, the United Kingdom and the United States issued a joint statement condemning the Putin’s “war of choice” and pledging to ensure the withdrawal of “certain Russian banks” from the SWIFT system.

“Those holding ruble deposits in Russia, including businesses, sensing that the Russian banking system might be cut off from the rest of the world, rushed to try to convert them into dollars or other Western currencies held there. ‘stranger,” said Avery Shenfeld, chief economist. at CIBC Capital Markets.

“All this selling, without the need for an offsetting purchase, creates a huge imbalance that drives the ruble down.”

Clifford Sosnow, a partner at Fasken Martineau DuMoulin LLP law firm in Toronto, said the combined sanctions would make it “extremely” difficult to move dollars to and from the Russian market and cause “widespread disruptions to supply chains involving the Russia”.

He added that the latest sanctions are in addition to existing sanctions related to Russian investments in certain oil production operations.

“Withdrawing Canadian and other countries’ banks from SWIFT access to Russian banks and preventing the Central Bank of Russia from accessing foreign exchange reserves…makes any international trade with Russia difficult, including oil purchases and gas from Russia,” said Sosnow, who is president of the international trading group at Faskens.

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However, some observers have noted that there is still some firepower left in the financial arsenal, even though its use could hurt some G7 countries that are still heavily dependent on Russian oil and gas exports.

An example of restraint can be seen in the decision not to cut all Russian banks from the global SWIFT interbank network, which will allow some payments to continue.

“While public opinion may demand more, for now the SWIFT-related sanctions are likely steep but not overly negative,” Citi analysts led by Dirk Willer said in a note to clients on Monday.

Europe, and in particular Germany’s heavy reliance on Russian natural gas, is pushing G7 countries, including Canada, to exert as much pressure as possible on banks, oligarchs and ordinary citizens without taking measures so widespread and comprehensive as to compromise these energy resources. imports, Warner said.

“It’s obviously a very fluid situation, but that’s the architecture…to keep these countries out,” he said. “If that changes, we’ll know right away because…it would actually be (the financial equivalent of a) nuclear attack.”

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As banks fail to meet credit thresholds for priority sectors, central bank extends deadline for compliance https://futurekomp.net/as-banks-fail-to-meet-credit-thresholds-for-priority-sectors-central-bank-extends-deadline-for-compliance/ Sat, 26 Feb 2022 02:09:46 +0000 https://futurekomp.net/as-banks-fail-to-meet-credit-thresholds-for-priority-sectors-central-bank-extends-deadline-for-compliance/

As many as 10 commercial banks out of a total of 27 had failed to meet the minimum credit threshold for the agricultural sector by mid-January this year, according to the Nepal Rastra Bank. Banks were indeed required to reach the threshold by mid-July last year, in line with the central bank’s directive.

Banks were supposed to extend at least 11% of their total lending to the agricultural sector by the end of the last fiscal year which ended in mid-July 2021, but failed to do so even six months after the date. limit.

Similarly, the number of banks failing to meet the credit threshold in the energy sector is even higher. As many as 14 banks fell short of the industry threshold as of mid-January this year, according to the central bank. Banks were supposed to extend at least 6% of their total loans to the energy sector by mid-July 2021.

The situation for loans to small and medium enterprises is similar. As many as 17 commercial banks had not reached the threshold for lending to the SME sector by mid-January this year.

According to central bank instructions, commercial banks were supposed to provide at least 11% of their total loans to SMEs by the end of last fiscal year. But the loan situation has not improved even six months after the deadline expired.

“One of the reasons banks have not reached lending thresholds is the Covid-19 pandemic which has hit businesses hard over the past two and a half years,” said Ashoke Rana, chief executive of the Himalayan Bank. “Even though lending has increased significantly in the first half of the current fiscal year, most lending has gone to finance imports instead of priority sectors.”

The Himalayan Bank, which has been exceptionally successful in lending to the agricultural sector, has failed miserably in increasing lending to the hydropower and small and medium enterprise sectors, according to the central bank.

The bank’s lending to the agricultural sector, which accounted for 23.62% of its total credit, as of mid-January, is the second largest and only second after the Agricultural Development Bank, whose lending to the sector accounted for 38 .28% of its total loans, according to central bank statistics.

Himalayan Bank lending to the hydropower sector and SMEs accounted for 2.03% and 1.79% of total lending respectively as of mid-January.

“We have been selective in lending to the hydropower sector,” Rana said. “When it comes to SMEs, we have given fewer loans in the Rs 10 million category. But we are providing up to Rs 60 million in loans to SMEs. Thus, our SME lending appears to be small by the central bank’s definition, which only counts loans below Rs 10 million as lending to the SME sector.

Banks that do not meet the threshold are subject to fines by the central bank. But the Nepal Rastra Bank on Wednesday left some leeway by telling banks that they can extend 32% of their total loans to priority sectors if they are unable to meet individual lending thresholds for agriculture (11 %), Energy (10%) and SME Sectors (11 percent).

The Agricultural Development Bank, which invested the highest amounts of loans to the agricultural sector among commercial banks in mid-January, was however only able to invest 4.75% of its total loans in the agriculture sector. energy in mid-January, according to the central bank.

Anil Upadhyay, managing director of the bank, said his bank had bought the energy bonds issued by NMB bank to increase lending to the hydropower sector.

The central bank allowed banks and financial institutions to honor their priority sector loans by purchasing relevant bonds issued by other banks and financial institutions. According to the central bank, 20.61% of the Agricultural Development Bank’s total credit went to SMEs.

However, most other banks have not reached the threshold in the energy sector. Upadhyay said one of the reasons banks have not met the thresholds is the lack of loanable funds in the past few months. “Even if they want to increase lending to meet the thresholds, they cannot do so due to lack of liquidity,” said Upadhyay, who is also the chairman of the Nepal Bankers Association.

Meanwhile, the central bank extended the deadline for commercial banks to meet priority sector lending thresholds.

Under new guidelines released on Wednesday, banks and financial institutions can now increase lending to the agricultural sector to 15% by mid-July 2025 from the previous deadline of mid-July 2023.

Similarly, they can increase their credit to the hydropower sector to 10% by mid-July 2025 from the earlier deadline of 2024 and they can increase loans to the SME sector to 15% by mid-July. July 2025 compared to the earlier deadline of mid-July 2024.

“In view of the impact of the Covid-19 pandemic on businesses, we have relaxed the provision regarding priority lending sectors to give relief to banks and financial institutions,” said Gunakar Bhatta, spokesperson for the central bank.

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Perils of Direct SBP Credit – Journal https://futurekomp.net/perils-of-direct-sbp-credit-journal/ Tue, 22 Feb 2022 02:18:06 +0000 https://futurekomp.net/perils-of-direct-sbp-credit-journal/

WHY is the State Bank of Pakistan’s direct lending to the government primarily harmful? And why is government borrowing from commercial banks less harmful, although a bit more expensive? These two questions continue to puzzle many experts. Since direct SBP credits to the government will be illegal following the legislation of the recent amendments to the Central Bank Act, the answers to these questions are of paramount importance. Ill-informed discussions lead to misleading conclusions. So let us be informed about the related matters of lending and borrowing.

An interest-based financial system always works through the process of “financial intermediation”. The first step in this process is the mobilization of savings by increasing deposits. The secondary step is to channel these savings to investors through loans. The primary and secondary stages are essential to this process, despite their connotations. Lending cannot take place without deposit mobilization, but without lending, deposit mobilization can still take place. Our banks and non-banking financial institutions function as “financial intermediaries”. They raise deposits cheaply and lend at high rates, meeting their expenses and making a profit from a margin (the difference between lending and deposit rates).

Government borrowing from the State Bank hinders savings.

When we make a deposit, we lend our money to the bank at their deposit rate. In addition to this rate, we are comfortable knowing that our money remains safe with them and that we can recover it at any time. We therefore agree to receive a return lower than that which the banks receive by granting loans. Banks have to charge a higher rate to cover the risk of borrowers defaulting. In this system, people with an account are incentivized to save their excess funds with the lure of safekeeping, meeting withdrawal needs, making payments to others, and earning returns that would not otherwise be possible if they kept the money with them. Whenever lending rates rise, deposit rates also rise, but not necessarily at the same rate. In short, this system promotes savings, while lending funds to investors.

Now imagine that a large entity (the government) starts borrowing from commercial banks. This increases the demand for credit, without increasing deposits (savings of the people). Lending rates will then rise and deposit rates will rise thereafter, giving people with cash additional incentives to increase their deposits. This process of financial intermediation includes built-in mechanisms to promote savings, in addition to making loans accessible. In popular and even expert discussion forums on borrowing or interest rates, the whole debate revolves around “poor borrowers” ​​and rarely around savers. So don’t expect to be enlightened by these discussions. In fact, these threads always have the ability to deceive anyone.

It should now be clear that government borrowing from commercial banks should promote savings. Is this also true when the government borrows from the central bank? Of course not. Why? Because it depresses the interest rate that would otherwise have resulted. Therefore, government borrowing from the SBP constrains savings. This leads to lower amounts of loanable funds in our financial system, which reduces investments. Our financial system becomes forced to lend to the private sector. It is not necessarily high loan rates that limit our investments. These are low savings rates. While there are many reasons for low savings, one of them is government borrowing from the SBP.

Now imagine a situation where the SBP does not extend any direct credit to the government but continues to meet banks’ demand for liquidity through open market operations. Commercial banks, in turn, continue to lend to the government, albeit at slightly higher rates, which partly passes on to depositors, encouraging them to save more. Ill-informed speakers will focus on the aspect of commercial banks taking unfair advantage of the government’s loss of power to borrow directly from the SBP and will continue to rant about matters unrelated to sovereignty, forgetting that no one can withdraw the power to issue government fiat currency.

SBP’s direct credit to the government hampers savings. It can rightly be called an “effective sparing inhibitor”. This is not the only downside of this loan which comes out of nowhere and not anyone’s money saved earlier. Direct credits lead to the printing of additional currencies. Most of us are already familiar with the inflationary impact of government borrowing from the SBP, but its main disease stems from an inhibition of savings. One could object to the reasoning advanced here and say that indirect credits to banks also lead to money printing. Even if all the money borrowed by the government from commercial banks is injected by the SBP, it will not prevent savings. Often, the amount injected is less than the amount borrowed. As savings begin to accumulate, they may decrease further. The most critical point here is that the mobilization of savings should be the main driver in meeting the borrowing needs of economic agents, including the government. Direct central bank credits should not be the primary drivers, but should still be made available to banks through open market operations or other refinancing windows as additional mechanisms.

The strong negative association between direct SBP loans to government and national savings would be extremely hard to miss by quantitative researchers of time series data, some of whom fail to find a positive association between these harmful loans and inflation. The prevailing media obfuscation of political, economic and financial issues, under the cover of an alleged loss of sovereignty, is nothing but a fear stemming from dying minds. True sovereignty comes from our own national efforts, our own savings and our own investments, as opposed to borrowed efforts, borrowed savings and borrowed investments. National sovereignty should never be confused with the ability to borrow from one’s own central bank, or the fiat to issue unlimited currency. I am happy to see that many young researchers, economists and analysts, and some older ones, are free from this confusion, which bodes well for our future.

The author is a former Deputy Governor of the State Bank of Pakistan.

rriazuddin@gmail.com

Posted in Dawn, February 22, 2022

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Banks decide to raise interest rate on deposits by one percent due to tight liquidity – myRepublica https://futurekomp.net/banks-decide-to-raise-interest-rate-on-deposits-by-one-percent-due-to-tight-liquidity-myrepublica/ Sat, 12 Feb 2022 12:41:09 +0000 https://futurekomp.net/banks-decide-to-raise-interest-rate-on-deposits-by-one-percent-due-to-tight-liquidity-myrepublica/

KATHMANDU, February 12: Banks are raising the interest rate on deposits citing the tight liquidity position in the country’s banking system.

The Nepal Bankers Association (NBA) at a meeting on Friday decided to raise the interest rate on deposits by one percent. In the revised rate, the apex organization maintained the 11.03% cap on fixed deposits for individual customers.

The upper limit of the interest rate for institutional depositors has been set at 10.03% per annum. Similarly, the interest rate on savings accounts has been set at 5% lower than the interest rate on time deposits while the interest rate on demand deposits is maintained at 3.015% by year.

According to a banker, the banks are seeking to raise the interest rate following pressure from the Nepal Rastra Bank (NRB) to do so. Amid a growing shortage of loanable funds despite the implementation of various measures by the NRB, the central bank reportedly asked banks to raise interest rates to attract more deposits.

According to NRB records, the base interest rate on loans reached 8.42% in mid-January. Similarly, the average interest rate on deposits reached 6.37% per year.

Following a rise in interest rates on deposits, banks are expected to raise the lending rate soon. Recently, banks raised their base interest rate on loans by more than two percentage points starting in mid-January, citing increased spending on deposit interest.

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Opinion: The Fed should manage the yield curve to put out the inflationary fire https://futurekomp.net/opinion-the-fed-should-manage-the-yield-curve-to-put-out-the-inflationary-fire/ Wed, 09 Feb 2022 11:00:00 +0000 https://futurekomp.net/opinion-the-fed-should-manage-the-yield-curve-to-put-out-the-inflationary-fire/

The Federal Reserve has gone from cultivating a hot labor market to cutting annual inflation by 7%. This task will require much more than the expected three or even five-quarter point increases in the FF00 federal funds rate,
+0.01%
this year and several more in 2023.

Omicron cemented hybrid work. Pressures will persist on housing prices in suburbs and communities far from major employment centers. Raising mortgage rates by about one percentage point will do little to lower rents or house prices.

The shift in consumer spending from goods to services will persist, and household balance sheets are still teeming with unspent stimulus cash. Supply chains remain fragile and chip shortages will limit manufacturers of motor vehicles, electronic gadgets and other durable goods until 2023.

The combination of buyers with available cash and shortages of critical components will keep inflationary pressures strong.

Restaurants and other services must pass on higher costs for materials, labor, COVID restrictions, and periodic closures or traffic slowdowns imposed by novel COVID strains. Otherwise, they bend.

Better remote collaboration software is coming. Real eye contact and a genuine sense of presence from innovations like Google’s Starline will prove the harbingers of a metaverse that’s more of a workplace than a destination for gaming and fantasy lives. The profits will be significant and technology companies will not need to borrow to invest.

In 1979 Paul Volcker became Fed Chairman and inflation was nearly 12%.

A more powerful figure than his predecessor, William Miller, and less political than President Jerome Powell or European Central Bank President Christine Lagarde, Volcker drove the federal funds rate up nearly 7 percentage points in eight months. The economy went into recession, he slowed to adjust to the recovery, then he raised the policy rate to 19%.

These days, such drastic action is unlikely, but a 1 percentage point increase at every meeting until inflation hits 2% would be more appropriate than what Powell seems inclined to do.

It’s hard to say that the labor market is not at full employment with an unemployment rate of 4% and nearly 11 million unfilled jobs. It is equally difficult to say that we are at full employment with so many people laid off from old service jobs still sitting on the sidelines.

Interest rates will have to be pushed high enough to cause additional unemployment, otherwise inflation will continue to outpace wages, exacerbate inequality for many years to come and tax the elderly who are disproportionately dependent on fixed-income investments. .

Worker availability—and the overall adult labor force participation rate—could be improved through relocation and retraining incentives and subsidies to enroll in Department of Labor apprenticeship programs.

We don’t need another round of additional unemployment benefits that exceed lost wages. Rather, state unemployment benefits should be portable for those moving abroad for training and mitigating relocation costs for those taking on new jobs.

Volcker-style hikes in the fed funds rate could flatten or invert the yield curve and accelerate further bank consolidation

Simply, banks rely on the spread between long rates on mortgages and the like and short rates for what they pay for deposits and other loanable funds. Smaller banks are more dependent on lending income, while larger banks are more dependent on trading fees, electronic payments, etc.

The last thing America needs – other than more COVID shutdowns – is for more community and regional banks to sell out to the giants of Wall Street and reduce competition in the financial sector.

Since 2008, the Fed has been paying commercial banks interest on the reserves they keep at the central bank. Tilting the yield curve could make the interest the Fed pays banks higher than what it collects on bonds and push them into a deficit.

Although the Fed could work around this problem, it would prove quite embarrassing and erode confidence in the dollar BUXX,
-0.17%.

The Fed is expected to complement larger increases in the fed funds rate by selling some of its long-term Treasuries and mortgage-backed securities to raise long rates.

It would steepen the yield curve to avoid central bank losses and suck liquidity out of the system where it hurts the most – too much demand for big-ticket items like cars and houses and corporate borrowing in the markets. junk loans and bonds.

Instead, the Fed is inclined to rely primarily on the fed funds rate to effect tightening and to wait at least several months after the start of this process to begin reducing its holdings of Treasuries and securities. mortgages.

It would be better to target a floor – a minimum but not a maximum – for the 10-year Treasury rate TMUBMUSD10Y,
1.932%
maintaining a suitably upward sloping yield curve for both the health of the banking sector and the effectiveness of monetary policy.

Peter Morici is an economist and emeritus professor of business at the University of Maryland, and a national columnist.

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