Strong de­mand for term de­posits to con­tinue as BSP low­ers vol­ume

Business World - - BANKING & FINANCE - By Melissa Luz T. Lopez Se­nior Re­porter

BANKS are ex­pected to con­tinue vy­ing for term de­posits of­fered by the Bangko Sen­tral ng Pilip­inas (BSP), a se­nior of­fi­cial said, with the re­newed de­mand and lower auc­tion vol­umes to drive mar­ket rates closer to the 3% bench­mark.

BSP Deputy Gov­er­nor Diwa C. Guini­gundo said the move to re­duce the amount of­fered un­der the term de­posit fa­cil­ity ( TDF) has helped usher mar­ket rates closer to the main pol­icy rate, in keep­ing with the cen­tral bank’s goal.

Wed­nes­day’s auc­tion saw ten­ders reach P166.956 bil­lion, surg­ing from the P148.378 bil­lion in bids re­ceived the pre­vi­ous week and log­ging well above the P140 bil­lion which the BSP placed on the auc­tion block.

Both the seven and 28- day tenors went over­sub­scribed this week. This is the first time in seven months, as the month-long term de­posits last posted an over­sub­scrip­tion dur­ing the March 15 auc­tion.

Banks wanted to place as much as P102.88 bil­lion in the term de­posits this week, slightly higher than the P100 bil­lion which the cen­tral bank eyed to sell. This brought the av­er­age yield to 3.4925%, inch­ing lower from pre­vi­ous week’s 3.4939%.

Wed­nes­day’s re­sult marked the sec­ond week of the lower TDF auc­tion vol­ume set by the cen­tral bank, which was re­duced from a P110- bil­lion of­fer­ing in Septem­ber.

“This is what we have been ex­pect­ing from the re­duc­tion in the vol­ume of 28-day TDF. Given the banks’ greater propen­sity to lend, buy for­eign ex­change to ser­vice the needs of their clients and in­vest in govern­ment se­cu­ri­ties, their place­ments with the BSP have de­clined. Thus, a re­duc­tion in the of­fered vol­ume is war­ranted and this would help guide mar­ket rates closer to the pol­icy rate,” Mr. Guini­gundo said in a text mes­sage to re­porters.

Prior to last month’s re­duc­tion, the cen­tral bank dan­gled as much as P150 bil­lion in month­long in­stru­ments weekly from De­cem­ber 2016 to April of this year.

Cen­tral bank of­fi­cials have said that they reg­u­larly re­view liq­uid­ity dy­nam­ics be­fore de­cid­ing on the auc­tion amounts per week, in or­der to bet­ter re­flect mar­ket con­di­tions.

“Banks com­peted for the re­duced vol­ume and re­strained their bids — thus, the over­sub­scrip­tion and lower bid rates. We ex­pect this to con­tinue given the

very ro­bust credit growth,” Mr. Guini­gundo added.

The TDF is cur­rently the cen­tral bank’s main tool in mop­ping up ex­cess money sup­ply in the fi­nan­cial sys­tem, as the plat­form al­lows banks to park funds which they can­not de­ploy for loans for a small re­turn.

Yields have risen to above 3% since the TDF was in­tro­duced, com­ing from an av­er­age of 2.5% when the weekly auc­tions started in June last year.

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