BAP mulls opening peso interest rate swap mart to foreigners

The Bankers Association of the Philippines (BAP) wants to open the peso interest rate swap (IRS) market to offshore investors as the platform continues to be developed.

Citi Philippines Country Head and Chief Executive Officer and BAP Open Market Committee Chairman Paul Raymond A. Favila said the peso IRS market has seen increased volume since its launch in November.

“I think we’ve seen quite a fair amount of progress in terms of volume already. But there’s still a long way to go in terms of adoption,” Mr. Favila told reporters at an event on Thursday.

“Now, we are also looking at opening up that market as we should, even for offshore investors. Because they need that, right? If you want to invest in the Philippines, you need to have a way to hedge yourself. So, those are very much consistent with everything that we are trying to do,” he said.

The enhanced peso IRS market began operations in November and is being handled by BAP to promote the development of yield curves to further support the pricing requirements of short-term credit instruments, such as loans.

The launch followed the release of the updated International Swaps and Derivatives Association (ISDA) on Nov. 15.

The Philippine Overnight Reference Rate (ORR) was included in the rates published by the ISDA. The BAP had developed the Philippine ORR, which is based on the Bangko Sentral ng Pilipinas’ (BSP) variable overnight repurchase rate.

The BSP has said that the IRS market will deepen the local capital markets, which would enhance savings and investments as well as strengthen the transmission of monetary policy.

Mr. Favila said the market’s operation is paving the way for the availability of data, which could attract potential participants.

“The challenge now as we are creating the historical data is for clients to start looking and saying, ‘I’m comfortable with this. Now I’d like to get engaged.’ So, that’s one step,” he said.

“That’s the next step, actually — getting more clients to actually ask questions, if not actually want to start using it. And then with the BSP, we are anticipating further developments on the repo (repurchase) space.”

The BSP and the BAP earlier said the repo market for government securities will also be expanded to boost trading and provide an alternative benchmark for short-term loan rates.

Mr. Favila added that increased activity would boost the development of the local capital market.

“In general, very positive,” he said when asked about his outlook for the peso IRS market. “We want to make sure that there is more reception coming from the end users. I always stress that this is not a market just amongst the banks. Otherwise, it doesn’t serve a purpose. It becomes speculative.”

“There are many, many legs to this whole thing, but for as long as they are all pointing in the same direction, I think we’re in a good place. So, we continue to track that very closely.” — AMCS