MANILA, Philippines — Banks continued to stay away from the term deposit auction facility (TDF) as they opt to lend more than park their funds with the Bangko Sentral ng Pilipinas (BSP) .
The liquidity absorption facility remained undersubscribed yesterday as bids reached P24.96 billion as against the lowered volume of P30 billion.
Tenders for the six-day tenor, however, amounted to P10.77 billion and exceeded the issue size of P10 billion.
However, both the 13- and 27-day term deposits were undersubscribed as bids only amounted to P7.42 billion and P6.77 billion, respectively, compared to the P10 billion volume for each tenor.
BSP Deputy Governor Diwa Guinigundo said there is temporary tightness in liquidity in the financial system as banks are opting to lend more.
“They (banks) are lending more. Tax season also diverted their funds. There is also temporary tightness in market liquidity,” Guinigundo said.
He added that national government deposits with the BSP continued to increase due to weak spending.
The government has a disbursement program of P3.77 trillion for 2019. However, actual government spending inched up by only 0.8 percent to P778 billion in the first quarter from P772 billion in the same quarter last year.
Economic managers estimate that underspending amounted to P1 billion a day, or as much as P90 billion during the period, due to the delay in the passage of the 2019 budget.
This pulled down the gross domestic product growth to a four-year low of 5.6 percent in the first quarter from 6.3 percent in the fourth quarter of last year.
“National government deposits with the BSP continue to increase because public spending remains weak,” Guinigundo said.
The yields of the term deposits also closed mixed during yesterday’s auction.
The six-day term deposits fetched a slightly lower rate of 4.6661 percent from last week’s 4.6669 percent.
On the other hand, the yield of the 13-day tenor inched up by 5.14 basis points to 4.6562 percent from 4.6048 percent while the 27-day term deposits saw a 12.46 basis points increase in yield to 4.7848 percent from 4.6602 percent.
About P106 billion worth of liquidity was released into the system last May 31 as the 100 basis points reduction in the reserve requirement ratio (RRR) for big, mid-sized and small banks took effect.
The RRR for both universal and commercial as well as thrift banks would be reduced further by 50 basis points on June 28 and another 50 basis points on July 26, releasing another P104 billion into the financial system.