BVAL rates can be ‘improved,’ says BAP

The Bankers Association of the Philippines (BAP) believes that the Philippine Bloomberg Valuation (BVAL) rates “can still be improved” despite the desire of Bangko Sentral ng Pilipinas Gov. Eli Remolona Jr. to have a new benchmark yield curve that would be good enough for pricing debt instruments.

“It’s (BVAL) not perfect, but as long as market participants accept it and trade off it, then it’s an index,” said Jose Teodoro Limcaoco, president of BAP as well as Ayala-led Bank of the Philippine Islands.

“I don’t think the current index is inappropriate today but like all indices, it can always be improved,” Limcaoco told reporters last week.

The veteran banker was responding to journalists’ questions on Remolona’s repeated criticisms of the BVAL, which the BSP governor had described as a “choppy” curve that is “not a good reference for pricing instruments.”

BVAL is the current benchmark being used following the 2023 phaseout of the London Interbank Offered Rate due to scandals involving alleged yield manipulation by rate-setting banks. It is overseen by the BAP as a Securities and Exchange Commission-licensed administrator.

The development of a “good” benchmark yield curve is one of Remolona’s three wishes for a “deep and liquid” capital market which, he said, “enhances the transmission of monetary policy.”

Under this plan, he specifically wanted to “revive” the country’s interest rate swap market, arguing that having such a derivative contract would lessen a borrower’s exposure to fluctuations in interest rates.

The BSP chief said that, once the local swap market is active again, a “swap curve” will eventually emerge that can replace the BVAL.

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For BAP’s Limcaoco, markets still have confidence in using BVAL.

“Can we come up with a better index today? I don’t think there’s one. Because you need to deepen the markets, you need to deepen specific maturities,” he said. INQ