Lending-averse banks swamp BSP with over P500B in short-term loans

Lending averse Philippine banks—awash in cash thanks to the prevailing low interest rate regime—swamped the central bank’s auction of short-term debt for this week and driving yields lower, data from the regulator showed on Wednesday.

All told, local lenders tendered P749 billion worth of bids for the 7-, 14- and 28-day term deposits and securities offered by the Bangko Sentral ng Pilipinas (BSP) this week, with the regulator making a combined full award on all three tenors of P570 billion.

“The results in today’s term deposit facility auction reflects the continued normalization in market participants’ sentiment on liquidity conditions, amid ample supply in the financial system,” BSP Deputy Governor Francisco Dakila Jr. said in a statement.

This week’s auction results show that banks have remained hesitant to underwrite new loans to all but the prime borrowers in recent months due to the uncertainties brought about by the coronavirus pandemic.

Oversubscribed

As such, they have opted to relend back to the central bank, despite the substantially lower interest rates, the estimated P2 trillion in liquidity released by the BSP into the financial system over the last year meant to combat the adverse economic effects of the public health crisis.

On Wednesday, the central bank maintained its term deposit facility offer volume at P490 billion with the same allocation between the 7-day and 14-day tenors at P140 billion and P350 billion, respectively.

Both tenors were oversubscribed, each receiving tenders of about 1.3 times their offered volumes. Total tenders reached P634.78 billion, well within the BSP’s range of expectations for liquidity.

The weighted average interest rates for both tenors continued to decrease from the previous week’s rates. The 7-day instrument declined by 1.05 basis points to 1.7737 percent while the 14-day fell by 3.341 basis points to 1.8097 percent.

Low yields

The yields accepted in the 7-day tenor remained low and narrow, ranging 1.7-1.8 percent while that for the 14-day tenor shifted higher but narrower with a range of 1.78-1.83 percent. For last Monday’s auction of 28-day BSP securities, banks submitted P114 billion worth of bids for the P80 billion on offer, with the regulator making a full award at a yield of 1.8795 percent.

“Moving forward, the BSP’s monetary operations will remain guided by its latest assessment of liquidity conditions and market developments,” Dakila said.

The latest BSP data showed that the pandemic-induced contraction in Philippine bank lending recently became a trend after a decline for the third consecutive month in loans underwritten by financial institutions in February.

Outstanding loans of universal and commercial banks, net of short-term deposits with the regulator, fell by 2.7 percent year-on-year in February after declining by 2.5 percent in January. On a month-on-month seasonally adjusted basis, outstanding universal and commercial bank loans increased by 0.2 percent.