SDA funds rise to new high despite rate cut

MANILA, Philippines - Funds parked at special deposit accounts (SDA) ballooned to a record-high as of the first week of March as banks shrugged off lower returns as a result of the first rate cut by the Bangko Sentral ng Pilipinas (BSP).

Money at 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, official data showed.

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

That move was repeated last March 14, pushing SDA yields down to 2.5 percent. The rate is now lower than the average two-month inflation rate of 3.2 percent, indicating investors would not get enough returns by letting their money sit idle at the facility.

BSP officials declined to comment. Analysts, for their part, said the effect of the two cuts on rates is yet to be felt.

“Banks may be inclined to rotate money out of the SDA,” DBS Ltd. economist Eugene Leow said in an e-mail.

Raul Victor Tan, senior vice president at the treasury division of Rizal Commercial Banking Corp., agreed, noting that BSP trimmed SDA rates for funds “to move to more productive sectors of the economy.”

“So going forward, loans should grow,” Tan said in a text message.

As of the moment though, that target is yet to be realized as loans and money supply expanded on a slower pace last month, separate BSP data showed.

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 granted 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 did not cite reason for the slowdown.

On the other hand, other investment instruments continued to remain unattractive to investors. For instance, foreign portfolio investments — usually placed in bond and equity markets — posted lower a net inflow of $211.65 million in February from $1.270 billion a month ago.

Jonathan Ravelas, chief market strategist at BDO Unibank Inc., said banks continued to prefer SDA than equities because of the former’s safe nature.

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

There was also not enough issue of long-dated government bonds where investors could earn more by parking longer, Tan said.

In cutting the SDA rates, the central bank also aims to push funds out to the capital markets to support its development. In a statement last week, the BSP said it continues to be watchful of developments.

“The BSP will monitor monetary conditions closely to ensure that liquidity in the financial system remains supportive of economic activity while ensuring low and stable inflation,” it said.