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ADB approves $200 million currency swap for Philippines

MANILA, Jan. 13 Kyodo

The Asian Development Bank (ADB) said on Tuesday said it has approved a $200 million currency swap for the Philippines.

Ajay Sagar, ADB's senior structured finance specialist, said the 15-year financing facility will provide long-term peso-dominated loans to selected banks for on-lending 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,'' Sagar said.

ADB will source the peso funds for the loans through cross-currency swaps of convertible currency for pesos with the Philippines. The currency swap is aimed at ''strengthening the banking system in a developing member country,'' he said.

He said the local currency will be loaned to banks at a fixed interest rate without government guarantee. The banks will then lend to local businesses. ''Participating banks can on-lend to either local of foreign owned borrowers in the Philippines,'' he said.

Targeted sectors include infrastructure, transport, manufacturing, small-and-medium enterprises (SMEs), housing, and expenditures on environmental improvement, he said.

''The money can be used to finance leasing and non-banking finance companies, consumer lending, retailing, modernization and upgrading of production facilities, resolution of nonperforming bank loans, securitization, and bond market development,'' Sagar said.

At present, he said that long-term fixed-interest rate peso 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,'' Sagar said.

He added, ''Long-term loans denominated in pesos will boost private sector confidence in developing and structuring the financing of investment projects in the country.''

Moreover, Sagar said, the injection of long-term peso-dominated funds will help to strengthen the Philippines banking system.

''Lack of long-term peso funding has hindered the country's capital market development. The country's foreign currency hedge market is still underdeveloped. It exists only for a very short exposure terms. ABD's initiative is to help create a healthy banking and financial system better equipped to provide financial intermediation needs,'' he said.

The Manila-based bank said it is already exploring undertaking similar swap arrangements in its other developing member countries throughout the region.

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