Banks will soon be able to price their loans to corporate and retail borrowers more accurately after the Bangko Sentral ng Pilipinas (BSP) introduced a third interest rate benchmark in its existing term deposit facility (TDF), resulting in what the central bank chief described as the “three tenors”.
The BSP yesterday launched a tender for a 14-day instrument in its term deposit liquidity management scheme which monetary regulators use to mop up excess liquidity from the local financial system while giving banks a guide for pricing their own securities, investments and loans.
“That’s responsive to market preference, as assessed from surveys we’ve conducted,” BSP Governor Nestor Espenilla Jr. said in a text message. “Having the right products makes it easier for BSP to absorb the volume of liquidity we are targeting. That, in turn, is informed by our liquidity forecast.”
The 14-day instrument augments the options banks have for the TDF, which previously only had windows for bank placements of seven and 28 days.
For the inaugural tender for the new window, the BSP offered to accept P20 billion worth of placements for which banks submitted P45.4 billion worth of bids. BSP accepted a total of P20 billion in tenders at an average yield of 2.8737 percent.
The two existing windows of the TDF scheme were also oversubscribed as banks continued to search for investments where they could temporarily park their excess liquidity.
For the seven-day instrument, BSP put out P40 billion worth of offers for which banks submitted P65.3 billion worth of bids. The regulator accepted P40 billion, for which it will pay an average rate of 2.7232 percent—marginally lower than the 2.7278 percent it paid for the same instrument last week.
For the 28-day instrument, meanwhile, the central bank solicited P20 billion worth of tenders for which banks submitted P45.4 billion in bids. Regulators accepted P20 billion worth at an average rate of 2.8737 percent, lower than the 3.0183 it paid banks for the same tenor last week.
Espenilla said the existence of the three tenors would result in the creation of a smoother yield curve at the very short term segment to guide the market in pricing their own securities.