Banks seen keeping funds in SDAs

The recent cuts in the interest rates on the Bangko Sentral ng Pilipinas’ special deposit accounts (SDAs) is not expected to trigger the pullout of a substantial portion of the banks’ more than P1.6 trillion in deposits in this facility.

This was according to Alberto Villarosa, president of the Bankers Association of the Philippines (BAP), who said that the SDA facility remained more attractive than other alternative forms of risk-free investments even with the rate cut effected by the BSP.

“My personal view is that there will be very little effect on the level of SDAs. The adjustment is minimal and the alternative options are priced lower,” Villarosa told the Inquirer.

Data from the BSP showed that as of June 22, money placed in the SDA facility of the central bank had reached P1.64 trillion.

Some economists have urged the BSP to encourage banks to pull out some of their deposits in the SDAs so they could lend more especially to job-generating investments.

With the attractive interest rates, however, banks found it worthwhile to place significant amount of deposits in the SDAs.

Local banks said their industry had already been providing a significant boost to the economy. They noted that bank lending had been growing at double-digit rates since last year.

The Monetary Board of the central bank last Thursday approved a 3.125-basis-point cut in the interest rates on SDAs across all maturities.

The cut brought the one-week SDA interest rate from 4.0625 to 4.03125 percent, the two-week interest rate from 4.125 to 4.09375 percent, and the one-month interest rate from 4.1875 to 4.15625 percent.

In the meantime, the BSP said the cut in the SDA rates was meant to align these rates with those prevailing overseas. The intention is to prevent the Philippines’ SDA facility from attracting foreign funds.

The BSP said the SDA facility was primarily meant to siphon off excess liquidity within the domestic economy to keep inflation manageable. It said the SDA facility was not meant to accommodate foreign investments.

The cut in the SDA rates followed the move of the BSP to prohibit banks from investing foreign funds of their clients in the SDA. Banks are required to submit a certification that the money they are placing in the SDA facility does not include foreign funds.

BSP Deputy Governor Diwa Guinigundo also said the cut in the SDA rates was not meant to reduce the central bank’s interest expenses.

The significant expenses incurred by the BSP from payment of interests on deposits by banks are partly blamed for the central bank’s nearly P34-billion net loss last year.