Funds parked with BSP reach P1.8 trillion

MANILA, Philippines - Funds parked with the Bangko Sentral ng Pilipinas (BSP) continued to increase as of the first week of August as banks reallocate their portfolios and as lack of better lending and investment opportunities persist, officials said.

Latest BSP data showed money on special deposit accounts (SDA) breached the P1.8-trillion mark for the first time, climbing by 4.77 percent to P1.822 trillion as of Aug. 6-10 from P1.739 trillion as of 16-20.

The rise was recorded despite the BSP’s ban on foreign funds in the facility effective July 16 and even after the policy-making Monetary Board reduced its key rates on which SDA rates are pegged.

Introduced by BSP in 1998, SDA are fixed-term deposits— with tenors of seven days, two weeks, and one month— by banks and trust entities. They are used by the central bank to siphon off excess domestic liquidity which could push up inflation.

“The increase was the result of a portfolio shift to the SDA. There should be a leveling off in the short-run,” BSP Governor Amando Tetangco Jr. said in a text message.

Bank of the Philippine Islands (BPI) economist Jun Neri said in a phone interview that SDAs remain as attractive investment vehicles since their “yield is still very high compared to Treasury bills.”

At the secondary market last Tuesday, one T-bill rate was pegged at 2.14 percent, while that of six-month and three-month papers were at 1.8 percent and 1.45 percent, respectively. These rates were still significantly lower than the 3.7915 percent offered by SDAs.

Thus, investors would enjoy higher returns if they invest their funds in SDA than in government securities.

“Even if they (BSP) lower the rate to two percent, I think the market will still have appetite for SDAs. In fact, I think if they did not (ban foreign funds), SDA deposits could have been higher,” Neri said.

Last July 26, the Monetary Board slashed key rates to new record-lows of 3.75 percent for overnight borrowing and 5.75 percent for overnight lending. SDA rates are pegged to BSP’s overnight borrowing rate, and thus, its four-percent rate was reduced to that same level after the rate cut.

For his part, BPI President and Chief Executive Officer Aurelio Luis Montinola III told reporters last Friday other investment channels are still missing. “These (funds) could get channeled to lending or other investments, maybe that is the direction that could happen in the coming years,” he explained.

Bank lending, net of BSP placements, grew by 14.9 percent as of the first semester to P2.976 trillion, faster than the five-month expansion of 14.7 percent.