MANILA, Philippines - Banks have been found compliant to a ban on foreign funds in special deposit accounts (SDA) where deposits remained high despite lower interest as a result of the Bangko Sentral ng Pilipinas’ rate cuts.
“Banks have generally complied per reports and representations. We, of course, will be validating (these) through on-site verification,” BSP Deputy Governor Nestor Espenilla Jr. said in a text message late Wednesday.
When asked about details of on-site inspections, Espenilla replied: “That is all I can say.”
In September, BSP announced it is looking at banks’ internal policies and processes to ensure their compliance to a rule bared four months ago prohibiting foreign funds from being placed in SDA. The facility is used by BSP to siphon off excess domestic liquidity from the market which could stoke inflation.
In order to attract placements, BSP pays interest to SDA deposits pegged at its overnight borrowing rate currently at 3.5 percent, down by 50 basis points since the ban on foreign money was announced in July. Despite the rule however, deposits continued to soar.
From July to Oct. 19, SDA placements rose by more than 14 percent to P1.832 trillion, BSP data showed. Nonetheless, the latest figure already marked a 2.5-percent decline from the P1.878 trillion posted last Sept. 28.
When asked if SDA deposits could decline further in the coming weeks, BSP Deputy Governor Diwa Guinigundo said in a separate text message it would be “difficult to predict.”
“But we expect our previous moves to continue to gain some traction over time,” he added.
But for Emilio Neri, economist at the Bank of the Philippine Islands, parked money is bound to go up “even if BSP decides to cut even more.” For the year, BSP has slashed its policy rates by a total of 100 basis points after a 25-basis-point cut last Oct. 25.