Trust entities commit to phase out prohibited SDA placements

MANILA, Philippines - Trust entities have committed to reduce and eventually phase out placements which were prohibited in special deposit accounts (SDA), a senior official of the Bangko Sentral ng Pilipinas (BSP) said yesterday.

 â€œAs expected, people have submitted their baseline and their phase down bill,” BSP Deputy Governor Nestor Espenilla Jr. told reporters on the sidelines of the Rural Bankers Association of the Philippines National Convention.

The SDA— fixed-term deposits by banks and trust departments with the BSP— has been refined by the BSP to reduce trillions in deposits and push out funds to the real sector.

Under Memorandum 2013-021 released last May 17, the central bank has prohibited investment management accounts (IMA) and other “agency accounts” from parking in the SDA facility.

The ban will begin Jan. 1, 2014, but by July 31, trust entities and departments should have at least removed 30 percent of existing placements from the SDA.

The complete phase out must be undertaken on or before Nov. 30. Violators may lose access to SDA.

 â€œWe just recorded what we have so that we have a starting point. By July, they have to reduce their placements by 30 percent and that will serve our next starting point (for November),” Espenilla said.

Espenilla, however, did not say the total amount reported by trust entities, only reiterating that the amount of SDA funds, if released into the system, “will not create inflationary pressures” or asset bubbles.

At the most, Espenilla said the “bulk” of the idle money may go to deposits or unit investment trust funds — pool of money managed by banks and could still be parked with the SDA.

Some may also be lent, he pointed out, justifying as “still decent” the 12-percent lending growth recorded in April, the slowest in 27 months.

 â€œIt will not translate into shopping spree, buying spree etc. it will just look for another alternative, a vehicle that gives them same proposition – of safety of the principal,” he explained.

Aside from the ban, the BSP has also slashed the interest it offers SDA deposits by a total of 150 basis points, bringing them down to two percent, in a bid to encourage funds to move out of the facility.

In the next policy meeting tomorrow, Espenilla said the Monetary Board “will assess the over-all situation” and may or may not cut again the SDA rate.

 â€œThe Monetary Board is going to study everything,” he said.