BSP triples losses to P78.43B

MANILA, Philippines - The Bangko Sentral ng Pilipinas (BSP) nearly tripled its losses as of October last year as high expenses due to peso intervention were made worse by a drop in revenues as a result of the low interest environment.

Losses reached P78.43 billion in the first 10 months, a sharp 187.39 percent increase from previous year’s P27.29 billion, official data showed. The BSP has been in the red for the past three years now.

Expenditures totaled P92.2 billion against revenues of P55.17 billion. Both went down 4.5 percent and 48 percent year-on-year, respectively.

Losses were made worse by foreign exchange fluctuations and provisions, basically reflecting revaluation on BSP’s dollar assets as a result of peso’s strength and the money it shells to temper the local currency’s rise.

As of October, the central bank lost P37.05 billion due to the appreciating peso, a reversal of last year’s gains of P9.57 billion, figures showed. BSP officials could not be reached for comment.

“Still, losses of BSP came from its continued payment of interest to RPs and SDA deposits,” said Emilio Neri, an economist at Bank of the Philippine Islands, in a phone interview.

Repurchase (RP) agreements and special deposit accounts (SDA) are tools by the BSP meant to siphon off excess domestic liquidity which could stoke inflation or result into asset bubble formations.

In order to attract placements, the BSP pays parked money in both facilities— totaling more than P1 trillion— interest equivalent to its overnight borrowing rate which currently stands at 3.5 percent. Pesos lost to pay for these returns are reflected on the BSP’s balance sheet.

The central bank’s interest expenses reached P76.84 billion in the first 10 months of 2012, although this already marked a 2.64-percent decrease from year-ago levels. Other expenses — including employee salaries — dipped to P15.38 billion.

With regard to the revenue drop, Neri said policy rate cuts last year also had an impact on BSP’s earnings, especially on interest it charges banks when it lends money. Interest income decreased 9.44 percent to P34.26 billion.

“For me it is an indication that our banking system is healthy that banks do not need to borrow money from the BSP. Also, the 100-basis-point cut on policy rates meant lower interest for BSP,” Neri explained.

To support growth amid benign inflation, the central bank slashed policy rates by one percent last year, causing its overnight lending rate to slide to 5.5 percent.

A higher dip in revenues was recorded from BSP’s miscellaneous income, which amounted to only P20.90 billion, contracting by nearly 70 percent. It was not clear what caused the drop.