BSP’s term deposit offer met with strong demand

DEMAND FOR term deposits recovered yesterday following last week’s holiday slowdown, although market preference for shorter tenors drove a slight pickup in yields.

Banks wanted to park as much as P124.31 billion in term deposits offered by the Bangko Sentral ng Pilipinas ( BSP) this week, well above the P110 billion on the auction block and the P90.705 billion in bids received during the previous auction.

Players crowded the seven-day tenor for as bids reached P65.113 billion, posting an oversubscription from the P50-billion offering and surging from the P46.485 billion tenders a week ago. However, banks wanted bigger returns for the week-long placements as the average yield climbed to 3.2657% from last week’s 3.1651%.

On the other hand, tenders for the 14-day term deposits softened on Wednesday as the central bank restored the P40-billion auction size. Total demand amounted to just P29.935 billion versus P32.133 billion a week ago following the long holiday in observance of the Lenten Season.

As a result, rates sought by banks inched up to a 3.3575% average from 3.2788% the prior week, with bids ranging from 3.23.5%.

The 28- day tenor saw stronger demand on Wednesday to reach P29.242 billion versus the BSP’s P20- billion offer. Investors matched the increase in the auction volume from last week’s P10 billion, which was matched by tenders worth P12.087 billion.

This kept yields flat at 3.4229% from 3.4232% previously.

The BSP relies on the term deposit facility ( TDF) in order to mop up excess funds in the financial system, especially after the regulator reduced the reserve requirement ratio imposed on universal and commercial banks to 19% of deposits which took effect March 2.

BSP Deputy Governor Diwa C. Guinigundo said banks may be gearing up for increased demand for cash ahead of the annual tax payment deadline, thus the tepid demand for the two-week instruments.

“Liquidity is coming back to the banks hence the oversubscription. However, given the tax season in less than 14 days, the demand for the 14-day TDF temporarily stalled,” Mr. Guinigundo said in a text message to reporters.

Still, the central bank official said this week’s auction results remain “consistent” with latest liquidity forecasts.

April 15 marks the deadline for annual tax payments covering fiscal year 2017.

Yesterday’s auction also marked the return of the P110billion volume posted by the BSP after it was slashed to P90 billion on March 28. The central bank said this was simply a response to softer demand as banks preferred to hold more cash to service clients ahead of the Holy Week break.

For next week, the BSP is planning to offer the same amounts auctioned off today for all tenors for a total of P110 billion.