Bill discount credit
From 10 April 2020, NBP is making bill discount credit available to banks. This is yet another instrument offered by the central bank that allows banks to obtain additional liquidity for a specific purpose.
In the assessment of NBP, in the current conditions it is vital to maintain the liquidity of enterprises and their ability to settle accounts with other economic agents. This requires the maintenance of access to working capital loans for enterprises.
Bill discount credit allows banks to refinance loans granted to non-financial enterprises. Banks will be able to discount the bills of exchange that they obtain as collateral on loans granted to enterprises at NBP.
1. What is bill discount credit?
The idea of the bill discount credit is that NBP accepts discount bills of exchange issued by enterprises as a result of working capital loans received by them from commercial banks. Enterprises will be able to issue bills of exchange to a bank as collateral against the loan granted by the bank, and the bank will then be able to discount this bill of exchange at NBP, thus obtain refinancing.
2. Why is the bill discount credit needed in the current situation?
One of the main economic challenges amid the current epidemic is to maintain liquidity of enterprises and ensure that they are able to settle accounts with other economic agents. This requires the maintenance of access to working capital loans for enterprises.
Domestic commercial banks are well-capitalised and liquid and they have also received liquidity support through the measures taken by NBP (the reduction in the required reserve, repo operations and the purchase of Treasury bonds). However, amid very high uncertainty, providing additional source of financing could be a factor supporting the supply of credit to companies.
3. What criteria have to be met for commercial banks to receive the bill discount credit?
The basic requirement for a commercial bank to have access to the bill discount credit is to hold a current account at NBP. The bank will also have to meet the minimum capital adequacy and liquidity requirements set by the financial supervision authority and must not be subject to a recovery plan regime. Branches of credit institutions will have to hold a guarantee of a domestic bank.
4. How will NBP set the limit for particular commercial banks?
The limit of the value of the bill discount credit for banks fulfilling the criteria will be set individually for each bank as the product of the value of its required reserves (calculated according to the rate lowered by the decision of the Monetary Policy Council on 17 March 2020) and the parameter calculated for each bank on the basis of its financial indicators.
5. What loans can be financed by commercial banks with the bill discount credit?
The aim of the bill discount credit is to refinance working capital loans granted to enterprises, regardless of their legal form or business activity. However, the loans refinanced at NBP with the bill discount credit should be granted under the same conditions as regards the interest rate as other types of credit granted by the bank.
6. What is the interest rate and the maturity of the bill discount credit?
The interest rate on the bill discount credit is based on the discount rate of the bill of exchange. The loan may be granted for a maximum period of one year.
7. What is the process of granting the bill discount credit?
The process of granting the bill discount credit consists of the following main stages:
- A framework bill discount credit agreement is signed between NBP and the commercial bank.
- The bank signs a credit agreement with an enterprise, this credit is collateralized, among others, by a promissory note; the bank may also be provided with a third-party guarantee of loan repayment by the enterprise.
- The bills of exchange are accepted for discount by the appropriate branch of NBP.
- The case is examined by the Bill of Exchange Committee in terms of formal inspection.
- The bill discount credit tranche is disbursed in the requested amount minus the discount interest.
- The bank repays the bill discount credit tranche.
- The bill of exchange is returned to the bank.
8. How long will NBP offer the bill discount credit?
Narodowy Bank Polski will be monitoring the situation in the corporate credit market and the demand for the bill discount credit and on this basis it will take decisions regarding the duration and amounts of the offered bill discount credit