Bent on pushing more money out of vaults and into the economy, the Bangko Sentral ng Pilipinas has issued a memorandum to banks that will further limit their access to the BSP’s special deposit account (SDA).
Under BSP Memorandum 21-2013, only money placed in trust accounts of unit investment trust funds (UITFs) managed by banks will have access to the SDA facility of the central bank.
This means that money placed in mutual funds and other investment instruments will no longer be allowed to be deposited in the SDA facility.
“Other fiduciary business, including agency accounts and investment management activities, shall no longer have access to the said facility,” the BSP said in the circular signed by Governor Amando Tetangco Jr. on May 17.
The order was only made public Monday through the central bank’s website.
In a statement, Tetangco said that the decision “to rationalize the operations for liquidity absorption through the SDA facility is in line with the BSP’s continuing efforts to fine-tune its monetary policy instruments and, therefore, gain greater flexibility in conducting monetary operations, while ensuring adequate liquidity for economic activity.”
The memorandum was issued following the release of the central bank’s unaudited financial statement for 2012. The statement showed that the BSP incurred a net loss of about P95 billion—the biggest since its inception in 1993.
The net loss was blamed largely on the central bank’s heavy dollar purchases and the enormous amount deposited in its SDA facility, the interest payments of which it had to settle.
Although the BSP had reduced the SDA interest rate by a total of 150 basis points since the start of 2013, funds deposited in the SDA facility was still huge at P1.86 trillion as of May 3. The amount was less than the record P1.98 trillion posted earlier this year.
The SDA interest rate now stands at a record low of 2 percent. Despite the rate cuts, bankers still believe that most investors are still attracted to the SDA because the interest rate is still higher than the yields of short-term government securities and just a bit lower than the yields of long-term government bonds.
BSP officials said that the SDA restrictions imposed on banks should encourage them to lend more money to businesses engaged in job-generating ventures. They said the enormous liquidity should be injected into the real economy so that more people, especially those from the low-income segment, would gain employment and support the rise of aggregate income.
Based on the memorandum, banks should start withdrawing funds so that, by July 30, at least 30 percent of the amount deposited would be out of the SDA facility. All funds covered in the memorandum must be withdrawn by Nov. 30, the BSP said.
The central bank said that, by January 2014, non-compliant banks could have their access to the SDA facility revoked.
Prior to the issuance of the memorandum, the BSP prohibited banks from depositing funds owned by foreigners in the SDA facility.