Despite lower returns, more cash placed in SDAs

MANILA, Philippines - Banks eased on lending last month as they put more funds in special deposit accounts (SDA) during the same period, shrugging off lower returns as a result of the first rate cut made by the Bangko Sentral ng Pilipinas (BSP).

Outstanding loans by universal and commercial banks grew 15.1 percent in February, slower than the revised 15.8 percent the previous month. The total amount released amounted to P3.179 trillion.

As a result, money supply growth also eased to 9.9 percent that same month from a revised 10.2 percent in January, the central bank reported Wednesday.

In contrast, deposits to SDA— banks’ and trust departments’ deposits with BSP— ballooned to a new record of P1.929 trillion as of March 8, up 2.77 percent from P1.877 trillion as of March 1, separate data show.

This was even after the BSP slashed SDA rates by 50 basis points last Jan. 24, bringing them to three percent from originally being pegged at overnight borrowing rate that stands at 3.5 percent.

That move was repeated last March 14, pushing down SDA yields to 2.5 percent. The rate is now lower than the average two-month inflation of 3.2 percent.

“The intent is for funds parked in the SDA to move to more productive sectors of the economy. So going forward, loans should grow,” said Raul Victor Tan, senior vice president at the Treasury division of Rizal Commercial Banking Corp.

Since there were not enough issuances of government securities and equities are risky, Tan said investors preferred to stay at the SDA even after the first rate cut.

In February, foreign portfolio net inflows— usually channeled to the bond and stock markets— dropped to $211.65 million from $1.270 billion a month ago, figures showed.

Eugene Leow, assistant vice president at DBS Ltd., agreed, but added more private sector lending may be recorded in the months to come. “Banks may be inclined to rotate money out of the SDA,” he said.

According to the BSP, loans to productive activities, which expanded 15.2 percent, accounted for bulk of bank credit last month. The expansion however marked a deceleration from 16 percent.

The following sectors posted the highest growth rates: real estate (25.1 percent), financial intermediation (27.2 percent), wholesale and retail trade (14.2 percent), manufacturing (7.3 percent) and electricity, gas and water (12.7 percent).

Meanwhile, consumer loans— or those used to finance household needs such as appliances— also lost pace, growing 12 percent from 12.4 percent month-on-month.

Jonathan Ravelas, chief market strategist at BDO Unibank Inc., said further cuts to SDA rates remain likely since inflation remains within target and that there is no clear, present credit risk.

“Investors continue to invest in SDA as it offers least risk as compared to stocks which are quite expensive in terms of valuation,” he said in a text message.

The BSP, in a statement, said it will continue to monitor liquidity in the financial system to ensure it “remains supportive of economic activity while ensuring low and stable inflation.