SDA funds parked at BSP vault surge 89% to P1.5T in 1st quarter

MANILA, Philippines - Funds parked in the vault of the Bangko Sentral ng Pilipinas (BSP) in the form of special deposit accounts (SDAs) surged 89 percent in the first quarter of the year as investors continued to search for high yielding investment instruments due to the lack of major infrastructure and development projects in the country.

Latest data released by the BSP in its first quarter 2011 Inflation Report showed that placements in the SDA facility of the central bank reached P1.487 trillion as of end-March or P701.8 billion higher from P785.2 billion a year ago.

The SDA facility consists of fixed-term deposits by banks and by trust entities of banks and non-bank financial institutions with the BSP. It was introduced in November 1998 to enable the BSP to expand its toolkit in liquidity management.

In April 2007, the BSP expanded access to the SDA facility by allowing trust entities to deposit in the SDA facility in order to better manage liquidity in the face of strong foreign exchange inflows.

The BSP also reported that bank placements under the BSP’s reverse repurchase agreements (RRPs) that is also used to siphon off liquidity from the financial system jumped 45 percent to P231.4 billion as of end-March from P159.5 billion in the same period last year.

The central bank said RRP which refers to the purchase of securities from the central bank with an agreement to sell them back at a fixed date increased by P71.9 billion.

Last year, the BSP withdrew almost all the several liquidity enhancing measures introduced in November of 2008 to cushion the impact of the global financial crisis on the domestic economy.

Crisis-related measures that were tweaked included the increase in the rate on a short-term lending facility to four percent from 3.5 percent as well as the reduction of the peso rediscounting budget to P40 billion and further to pre-crisis level of P20 billion from P60 billion, the restoration of the loan value of all eligible rediscounting papers to 80 percent from 90 percent of the borrowing bank’s credit instrument, and the restoration the non-performing loan (NPL) ratio requirement of two percentage points from 10 percentage points.

Earlier, BSP Governor Amando M. Tetangco Jr. encouraged banks to put into productive use SDA placements parked in the vault of the central bank to help sustain the country’s strong economic growth.

The idle funds, Tetangco explained, could be released to bankroll productive projects including infrastructure projects under the Aquino administration’s public-private partnership (PPP) scheme.

 “The challenge here is how to use this liquidity for productive uses. Our recommendation for banks is to try and lend more including lending for infrastructure development under the PPP framework of the national government,” he added.