Placido Mapa, president of the Bankers’ Association of the Philippines (BAP), said the government’s growing budget deficit will prevent interest rates from returning rapidly to their previous level.
While there has been a slight easing of interest rates, a drop back to 11 percent would "take time ... we have to work on the budget deficit also," Mapa said.
At yesterday’s Treasury bill (T-bill) auction, rates fell across-the board, prompting the Bureau of Treasury (BTr) to finally phase out the high-yielding cash management bills next week.
Rates for the bellwether 91-day T-bills shed 92.5 basis points to settle at 15.367 percent from 16.292 percent the previous week.
Rates for the 182-day T-bills plunged by 127 points to end at 15.749 percent, while that of the 364-day tenor eased 88.6 points at 15.977 percent.
National Treasurer Leonor Briones attributed the drop in T-bill rates to at least three factors.
For one, Briones said, "the market is aware that the government is ready to phase out the CMBs starting next week."
The strong demand for government securities was also one of the reasons for the drop in T-bill yields, she said. "The tenders during yesterday’s auction prove the demand," Briones stressed.
Third, Briones said, the local financial market is still awash with cash especially now that the foreign exchange market appeared to have stabilized.
The Bangko Sentral ng Pilipinas (BSP) earlier said it expects banks’ non-performing loan ratio to rise to 16 percent from 15.31 percent in August because of higher interest rates.
"Instead of borrowing and funding business activities, businesses are just depositing excess funds," Mapa said.
Bank withdrawals have also remained normal, despite recent talk that some of the country’s largest banks have suffered liquidity problems, he said.
Mapa said banks continue to deal with problematic loan accounts. "Some borrowers still become past due, others are able to pay, while others couldn’t really pay," he said.