TENDERS made to the Bangko Sentral ng Pilipinas (BSP) term deposit facility (TDF) of P123.414 billion showed that there is still liquidity in the market resulting from the move of the Monetary Board (MB) to cut reserve requirement ratios (RRR).
The BSP’s TDF on Wednesday posted total tenders amounting to P123.414 billion, with local banks showing interest in the 28-day tenor, as rates are expected to move lower after the MB’s policy meeting on Thursday (August 8).
“TDF auction saw a bid to cover ratio of 1.542 with most dealers interested in securing placement at the 28-day tenor given wide expectations for rates to move lower after Thursday’s projected rate cut,” said ING Bank Manila Senior Economist Nicholas Antonio T. Mapa.
The seven-day TDF window was awarded the full P30 billion on offer, with tenders amounting to P37.187 billion, and a bid to cover ratio of 1.239 percent.
During last week’s TDF auction, the tenor was awarded P31.247 billion from the P40 billion on offer, at a bid to cover ratio of 0.781 percent.
“Bids totaled P123.4 billion in the week that BSP lowered its TDF auction size to P80 billion from P100 billion. This could show that the additional liquidity freed up by the recent RRR reduction [has] yet to be deployed to boost loan growth and [is] currently plowed back with the BSP through its overnight and term facilities. Perhaps, banks need a little more time to farm out loans given that RRR reductions were completed just a week ago,” Mapa added.
Tenders for the 15-day TDF window amounted to P44.427 billion, with the tenor bucket being awarded the full P30 billion on offer at a bid to cover ratio of 1.480 percent.
The 14-day tenor last week saw bids amounting to P29.77 billion, which was still awarded despite it being short of the P30-billion offering. The bid to cover ratio was at 0.992 percent.
The 28-day TDF window was awarded P20 billion as bids were twice oversubscribed at P41.800 billion, with a bid to cover ratio of 2.09 percent.
Bids for the 28-day TDF window of P27.615 billion last week were short of the offering of P30 billion, but were still awarded in the end. The bid to cover ratio was at 0.920 percent.
“Furthermore, after BSP hiked aggressively by 175 basis points in a span of five months in 2018, perhaps corporates still find borrowing costs quite elevated and high rates are usually a deterrent to loan growth,” he said.
In May, the BSP’s Monetary Board moved to cut its deposit requirement on smaller banks in the system, after earlier cutting the rates for the universal and commercial banks RRR.
Monetary authorities decided to cut the RRR of thrift banks by 2 percentage points from 8 percent to 6 percent.
The implementation dates for the reduction are as follows: 100 basis points effective May 31; 50 basis points effective June 28; and, 50 basis points effective July 26, 2019.
The MB also cut the RRR of the universal and commercial banks by a total of 2 percentage points, with about P95 billion released in May; about P47 billion in June; and another P47 billion in July.