Risk averse banks continue parking excess cash with BSP

Philippine financial institutions continued to swarm the central bank’s short-term liquidity facility with excess cash last week as risk aversion to underwriting new loans remained the prevailing sentiment due to pandemic-related economic uncertainties.

According to the Bangko Sentral ng Pilipinas (BSP), it raised its weekly tender for 28-day debt instruments by P10 billion from the previous week’s offer for a total size of P110 billion.

Despite this increase in size, the BSP bill auction was awarded in full “amid strong interest from market participants,” the regulator said, adding that total bids received amounted to P148.05 billion, which is equivalent to about 1.35 times the offering.

As a result of the oversubscription, the weighted average interest rate continued to decline, settling slightly lower by 0.167 basis point to 1.7194 percent. The yields accepted remained broadly unchanged with a range of 1.7125-1.7275 percent.

“The auction results are in line with the view that market conditions remain stable amid sustained ample liquidity in the financial system,” BSP Deputy Governor Francisco Dakila Jr.

Earlier in the week, the central bank’s auction for shorter tenor securities also attracted strong interest from banks, prompting the regulator to increase the volume.

The BSP increased its term deposit facility (TDF) offer volume to P570 billion, P20 billion higher than the previous week’s offering.

The volume was allocated between the 7-day and 14-day tenors at P150 billion, maintained from the previous auction, and P420 billion, higher than the previous week’s P400 billion, respectively.

The 7-day term deposit facility was oversubscribed with bids higher by 1.55 times the offered amount. Meanwhile, the 14-day term deposit facility was undersubscribed with bids at 0.92 times the offering.

“Nevertheless, total tenders reached P618.294 billion, in line with the BSP’s expectations,” the regulator said.

The weighted average interest rate for the 7-day facility declined from [the previous] week’s rate by 0.859 basis points to 1.7121 percent. Meanwhile, the weighted average interest rate for the 14-day facility increased by 2.135 basis points to 1.7381 percent.

The accepted yields in both tenors remained low with the 7-day facility narrowing further to a range of 1.6750 to 1.7393 percent and the 14-day TDF widening to a range of 1.7000-2.2100 percent.

“The results of the auction remain consistent with normal market conditions amid ample financial system liquidity as seen in the sustained overall demand for the term deposit facility,” Dakila said, adding that the undersubscription in the 14-day facility reflects a shift in market participants’ preferences toward the shorter tenor.

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