Term deposit offer sees strong demand

BANKS AND trust firms continued to crowd the central bank’s term deposit facility ( TDF), bringing the average yields lower for the second straight week on the back of excess money supply in the financial system.

Total bids for the TDF auction reached P255.115 billion on Wednesday, well above the P180billion offered by the Bangko Sentral ng Pilipinas (BSP).

The seven-day tenor saw total tenders at P51.07 billion, 1.7 times higher than the P30 billion auctioned by the central bank. Rates sought by bidders averaged at 3.0103%, dipping from last week’s 3.0219% and as firms sought for yields from a narrow range of 3-3.02%.

The 28-day term deposits also saw overwhelming bids amounting to P204.045 billion, breaching the BSP’s P150-billion offer. The average yield also went down to 3.4007% from 3.4106% previously, but still close to the 3.5% ceiling set under the interest rate corridor.

The TDF is the central bank’s main tool to arrest excess liquidity in the financial system, with the goal of bringing market rates closer to the BSP’s 3% benchmark rate while also spurring greater interbank lending.

BSP Governor Amando M. Tetangco, Jr. said the TDF results showed the continued preference for the shorter tenor, reflecting a cautious stance taken by market players in light of lingering uncertainties in the global market.

“The TDFs remained choice instruments as markets continue to favor the short end of the curve,” Mr. Tetangco said in a text message to reporters.

Market players have been on a wait- and- see mode in recent weeks amid concerns on developments in the US, largely driven by the expected “lift-off” in interest rates by the Federal Reserve and “protectionist” policies introduced by new President Donald J. Trump.

The central bank also decided to keep the weekly volume steady at P180 billion until the first week of March, with Mr. Tetangco saying that such a level is “still consistent with our liquidity forecast path.”

This would mark the fourth straight month when the weekly auction volume stood at P180 billion, which has been kept since Dec. 1, 2016.

Central bank officials have said that plan to cut the 20% reserve requirement imposed on big banks remains on the table, but has been held off as markets remain awash with liquidity.

BSP Deputy Governor Diwa C. Guinigundo previously said that the BSP can consider adjusting the reserve standard at a time of tighter liquidity conditions.

Once reduced, the reserve requirement will free up more funds for banks to lend out, which would effectively increase the money supply circulating in the economy.

“We are not thinking of brick-and-mortar anymore but we have a partnership with an Aboitiz-owned company as well, the PETNET. We will tap their services especially in the Mindanao area,” Mr. Abacan said.

In 2015, Aboitiz Equity Ventures, Inc. (AEV) acquired a majority stake or 51% shares of PETNET, which is now the conglomerate’s money remittance firm, under a P1- billion deal.

PETNET was poised to boost CSB’s loan portfolio as it sought to widen its reach in the local market through an existing tie-up with the thrift lender on salary loans.

In 2016, PETNET President Lorenzo T. Ocampo had said the lending business is expected to be “a strong second leg” in their operations “within the next two years,” citing its partnership with CSB.

“Of course there are glitches along the way, we have to iron it out... So hopefully, our expectations this 2017 is [the partnership should be] problem-free,” Mr. Abacan said.

The money remittance firm was earlier established to grow the branch network of Western Union in the country. Its branch network is focused on services of Western Union with products such as bills payment and money exchange.

UnionBank took over CSB in 2013, a move that consolidated the Aboitiz’s banking ventures under one company. CSB is also majority-owned by AEV and its food unit, Pilmico Foods.

Earlier this month, Union Bank President and Chief Operating Officer Edwin R. Bautista said the lender’s “all-time high” bottom line in 2016 was on the back of their business model shift from being dependent on trading gains to gearing towards expanding its lending business.

According to Mr. Bautista, their retail loans “grew faster” compared to their corporate loans last year, to which 60% of their total loan book account for their retail lending activities that comprise of small businesses and individuals while 40% are from their corporate lending.

The country’s tenth largest lender saw its bottom line reach P10.1 billion by end-2016, 67.3% higher from the P6.0 billion profit earned in 2015, mainly due to the expansion of its total loan portfolio for the year.

While its total loans stood at P235.4 billion in 2016, 31% higher from the P179.55 billion raked in 2015 on the back of an increase in their recurring revenues primarily driven by its consumer loans and deposits.