Rigging of rates unlikely in local banking - BSP

By Prinz P. Magtulis, The Philippine Star

Posted at Jul 04 2012 08:01 AM | Updated as of Jul 04 2012 04:01 PM

MANILA, Philippines - Rigging of interest rates done by British banks are unlikely to happen in the Philippine banking industry, Bangko Sentral ng Pilipinas (BSP) Governor Amando Tetangco Jr. said, even as he maintained that the central bank continues to monitor bank rates.

“A similar occurrence in the Philippine setting is not very likely. The processes for setting the rate fixing (for secondary trading of fixed income securities, for instance) are quite transparent to market participants, including to those from the BSP side,” Tetangco said in a text message to The STAR.

A parliamentary inquiry of the banking sector was launched yesterday by British Prime Minister David Cameron following the fining of Barclays of the equivalent of $450 million for its connivance with other banks to manipulate the London Interbank Offer Rate (LIBOR), the rate used by banks in lending to each other.

Reports said Barclays manipulated LIBOR either to make profit by raising borrowing costs or lowering them to make it appear that the bank is in good standing during the 2008 financial crisis.

Jonathan Ravelas, BDO Unibank Inc. chief market strategist, explained there is “more transparency” as far as Philippine banks are concerned, thanks to the Philippine Dealing and Exchange, Corp. (PDEx), which serves as secondary market for fixed-income securities.

“I don’t think it (manipulation) may happen to us. In the first place, what is accepted in the market is basically the best bid offer,” Ravelas said in a phone interview.

These bids, according to Philippine Business Bank president Rolando Avante, are also subject to “audit.”

“In the PDEx, you can easily see the bids being made by banks. I think it also boils down to the vigilance of the BSP to check out these rates,” Avante said.

Avante said the low interest rate environment in Europe is also partly to blame for the rigging incident, noting that banks connived with each other in order to avoid suspicion from regulators.

“But interest rates here are not that really low so there is little space for banks to connive with each other,” he explained.

Nevertheless, Tetangco said the BSP will remain vigilant and act accordingly. “The BSP monitors price movements closely. We will be ready to consider sanctions as appropriate and when needed,” he added.