MANILA, Philippines—With the cut in the yield on special deposit accounts (SDAs), the Bangko Sentral ng Pilipinas now wants banks to lend more to small entrepreneurs.
Felipe Medalla, a member of the Monetary Board of the BSP, said the banking sector had become “lazy” because industry members could earn decent profits by simply investing funds in virtually risk-free SDAs.
“The [banking] system has gotten lazy. The disadvantage of having an SDA rate that was too attractive was that banks would not work very hard to find new clients,” said Medalla, who is a former economic planning secretary.
“With the lower SDA rate, we hope banks will now want to move [some of] their money. But something like that does not happen overnight. Being able to service more loan demand requires improvement in infrastructure,” he said.
Last Thursday, the Monetary Board decided to cut the interest rate on SDAs by another 50 basis points to just 2.5 percent.
Economists said the Philippine economy would grow even faster if banks would withdraw some of their funds from SDAs and use these for lending.
Bank lending grew at a double-digit pace last year, but monetary officials believe there is still a big room for credit expansion.