Term deposits fetch lower rates in auction

MANILA, Philippines — Term deposits continued to fetch lower rates during yesterday’s auction as liquidity continues to return to the financial system, according to the Bangko Sentral ng Pilipinas.

 The seven-day term deposits fetched an average rate of 3.0280 percent, lower than the 3.2223 percent recorded during the previous auction as accepted yields ranged from 2.9375 percent to 3.1 percent.

Total tenders for the week-long term deposits reached P125.56 billion, 3.1391 times oversubscribed as against the P40 billion offering.

BSP Deputy Governor Diwa Guinigundo said yesterday’s auction saw an oversubscription as banks are starting to see liquidity back into the financial system.

“We should impress upon the banks and the market that their impression of tight liquidity is not exactly accurate,” he said.

Guinigundo said the funds absorbed by the previous retail treasury bonds offering of the Bureau of the Treasury (BTr) last year actually end up with the SP and subsequently withdrawn by the national government to finance operations and capital spending.

 “That means funds go back to the banks when suppliers and creditors are paid by the national government. This cycle is also true for those funds that appear to have been committed as loans. They are withdrawn by the borrowers, paid to their creditors and suppliers who eventually deposit the proceeds back to the banks,” he said.

According to Guinigundo, funds withdrawn during the holiday season are also returning to the banks.

“So it’s a cycle that continually enables economic activities to proceed and increase the output of the general economy. That’s why as the banks receive back these deposits, they have more to place with the BSP and this is what is happening now to the TDF market,” he said.

Once the cycle has regularized, Guinigundo said the BSP would assess its TDF offering to ensure that the liquidity levels remain appropriately calibrated.

The BSP auction committee has not offered 28-day term deposits for the past four weeks due to tight market conditions amid the high demand for cash during the holiday season.

Next week, the BSP will continue to offer offer P40 billion worth of seven-day term deposits.

Liquidity in the financial system rose 14.8 percent to P10.26 trillion in end-October last year from P8.94 trillion in end-October 2016, while credit growth grew slower at 19.9 percent to P6.81 trillion from P5.68 trillion as banks continued to lend more to the productive sector.