Banks in the Philippines reluctant to lend – flooded with cash thanks to the prevailing low interest rate regime – swamped the central bank’s short-term debt auction this week and drove yields lower, the data shows. of the regulator published on Wednesday.
In total, local lenders submitted bids worth 749 billion pesos for term deposits and 7-, 14- and 28-day securities offered by the Bangko Sentral ng Pilipinas (BSP) this week, with the regulator granting a full allocation combined over the three durations of 570 billion pesos.
“The results of today’s Term Deposit Facility Auction reflect the continued normalization of market participants’ sentiment on liquidity conditions, amid ample supply in the financial system,” the report said. BSP Deputy Governor Francisco Dakila Jr. in a statement.
Results from this week’s auctions show that banks have remained hesitant to take out new loans to all but major borrowers in recent months due to uncertainties caused by the coronavirus pandemic.
Oversubscribed
As such, they chose to on-lend to the central bank, despite significantly lower interest rates, the estimated 2 trillion pesos of liquidity released by the BSP into the financial system over the past year, intended for to combat the adverse economic effects of public health. crisis.
On Wednesday, the central bank maintained the volume of its term deposit facility offer at 490 billion pesos with the same allocation between 7 and 14-day tenors at 140 billion pesos and 350 billion pesos, respectively.
Both tenors were oversubscribed, each receiving offers of approximately 1.3 times their offered volumes. Total tenders reached 634.78 billion pesos, well within the range of BSP’s liquidity expectations.
The weighted average interest rates for the two maturities continued to fall compared to the rates of the previous week. The 7-day instrument fell 1.05 basis points to 1.7737% while the 14-day instrument fell 3.341 basis points to 1.8097%.
Low yields
Accepted yields in the 7-day duration remained low and narrow, ranging from 1.7% to 1.8%, while those in the 14-day duration rose but tightened with a range of 1.78 to 1%. .83%. For last Monday’s auction of 28-day BSP securities, banks submitted bids worth 114 billion pesos for the 80 billion pesos on offer, with the regulator granting full allocation at a yield of 1. 8795%.
“Going 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 bank lending in the Philippines has recently become a trend after a third consecutive month decline in loans taken out by financial institutions in February.
Outstanding loans from universal and commercial banks, net of short-term deposits with the regulator, fell 2.7% year-on-year in February after falling 2.5% in January. On a seasonally adjusted monthly basis, outstanding universal and commercial bank loans increased by 0.2%.
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