Banks still drawn to shortest term deposits

Local banks continued to park their excess funds in the shortest-term instrument of the Banngko Sentral ng Pilipinas (BSP) this week, but were less aggressive with the longer-tenored facility—an indication that financial institutions expect interest rates to rise going forward.

During Wednesday’s term deposit auction, banks submitted P65.5 billion worth of bids for the P40 billion seven-day deposit facility—for a bid coverage ratio of 1.63 times. The bids ranged from 3.2 percent to 3.35 percent resulting in a weighted average accepted yield of 3.308 percent.

In contrast, demand for the 28-day term deposit facility was more muted. Banks submitted only P113.9 billion worth of bids for the P140 billion on offer, for a bid coverage ratio of 0.81 times. The bids ranged from 3.375 percent to 3.5 percent resulting in a weighted average accepted yield of 3.4589 percent.

“BSP will continue to monitor bank liquidity positions as some reported that there is lower appetite for the 28 days as they are still refining positions after the long weekend,” BSP Governor Amando Tetangco Jr. said.

“We expect to see continued interest in the seven-day facility as [its] average rate remains close to the 28-day average rate,” he said, although he held out hope that banks interest in the 28-day instrument “may rise as funds come back to the banking system.”

According to market watchers, the local financial system remains very liquid thanks to continued inflows of remittances from expatriate Filipinos. Analysts have pointed out, however, that pressure is rising for domestic interest rates to move up as portfolio funds move back to developed markets after almost a decade of high liquidity brought about by the US Federal Reserve’s quantitative easing policies. —DAXIM L. LUCAS