The Market Monitor Minding the Nation's Business
By Jerry Maglunog
With the closure of the Bangko Sentral ng Pilipinas’ (BSP) special deposit account (SDA), banks are now scrambling to have alternatives where to put their money.
Excess money of banks is so huge that if not invested properly will lead to asset bubble, experts say
Many are into unit investment trust funds (UITFs) while some become aggressive in consumer loans, a bank offer that gives better margin compared to other banking activity.
Banks are considered safe when the SDA still has above six percent interest some three years ago. “The closure [of SDA] really bothered many banks, including ours,” said Reynaldo Montalbo, senior vice president of First Metro Investment Corp., the investment banking arm of Metrobank.
He said that their bank alone has around P800 billion in SDA. Interest at the lending facility suddenly went down to just two percent at present. There are mixed reactions to the almost closure of SDA.
Some say it’s a good move because the BSP has stopped competing with banks that offer almost the same interest in many of their offers to clients. Others say the banks will have hard time looking for alternatives to park their money.
“No more issuance of demand deposits this time,” said Cyd Tuaño Amador, BSP assistant governor in-charge of accepting funds intended for SDA, in an interview a year ago.
Although she didn’t say what banks have the biggest deposit at the facility, she hinted that the bulk of deposits are from those with biggest assets. The top seven banks in assets are Banco de Oro, Metrobank, Bank of the Philippine Islands, LandBank, Rizal Commercial Banking Corp., Philippine National Bank and Security Bank.
In putting the interest at the lending facility to just two percent, BSP deputy governor for monetary stability sector Diwa Guinigundo said banks are encouraged to lend that’s why the facility was closed.
Montalbo admitted that some banks have become lazy to lend to businesses due to the SDA facility. “It’s a good thing because businesses now have more opportunities to get loans. Loan pricing differs but many are risky,” the FMIC official added.
For the BSP, the closure of the facility proves to be beneficial as it losses have significantly decreased. Since mid-2014, losses of the central bank have reached P40 billion which is a significant drop.
Major portion of its losses come from interest payment while the rest are from spending. Renato Diaz, a top investment banker, said the closure of the lending facility is good for businesses because there is no other way for banks to make margins but to increase lending activity.
“They can direct the funds instead to agriculture or small and medium enterprises that badly need banking assistance,” Diaz, also a former two-term congressman of Nueva Ecija’s first district, said.
He said that the lending facility has made many banks shortchange the public, especially the depositors, because the interest in the deposit is so low. “Why will they bother to give high interest if the BSP only gives that much,” the former lawmaker added.
Interest at deposits at any bank is now only between 0.45 to 0.65 percent per annum, almost the same as the interest in 60-day treasury bills.
The excess amount owned by banks, approximately P12 trillion, is so huge that if lent to businesses will create more economic activity, the investment banker added. With closure of the facility, it is now unclear whether rural banks can still be allowed to park money at the facility.
“If they put so much money at UITFs sooner or later the good interest at that facility will also be gone. The supply and demand attitude is not just among supplies, it is also applicable in this scenario,” Diaz, chairman of the House ways and means committee from 1992 to 1998, added.
Rural Bankers’ Association of the Philippines president Jose Misael Moraleda said the money circulating at the RB industry is also so huge that if not parked properly can cause asset bubble among the smallest-classified banks.
In an earlier interview, the BSP said it is cool on the idea to let RBs place money at the SDA. Banks, regardless of classification, are encouraged to lend, the central bank said.