By Melissa Luz T. Lopez,
Senior Reporter

BANKS swarmed yesterday’s auction of term deposits following the return of the month-long tenor, driving yields lower amid overwhelming demand.

The Bangko Sentral ng Pilipinas (BSP) received bids cumulatively worth P140.003 billion during Wednesday’s offering under the term deposit facility (TDF), more than double the P60 billion it placed on the auction block and surging from the P116.634 billion dangled the previous week.

The seven-day tenor saw tenders reach P88.573 billion, slipping from the previous week’s level but still well above the P40 billion which the central bank wanted to sell.

Still, the average yield dropped to 2.7278% from the 2.7785% fetched a week ago.

On the other hand, market players actively vied for the 28-day term deposits as the window was reopened after seven weeks. Demand reached P51.43 billion against a P20-billion offering, with banks asking for returns ranging from 2.75-3.125%.

This led to a 3.0183% yield, sliding from the 3.4954% average fetched when the month-long term was last offered on Dec. 13.

The TDF is currently the central bank’s main tool to capture excess liquidity in the financial system. The window allows banks to park the idle cash they hold under the BSP in exchange for a small margin, which in turn will prompt market rates to inch closer to the three percent benchmark set by the central bank.

Any excess cash that have not been deployed for loans, foreign exchange and debt payments are parked under the central bank window in order to make small gains, rather than leave these idle inside vaults.

Meanwhile, the central bank has eased rules to allow banks to place more funds under the TDF.

“[F]unds inwardly remitted by a foreign bank intended as capital of its branch or subsidiary in the Philippines shall be eligible for placement in the TDF and the ODF (overnight deposit facility) of the Bangko Sentral,” BSP Circular 995 read, as signed by Governor Nestor A. Espenilla, Jr.

As a rule, banks cannot park deposits and investments from foreigners under the central bank’s termed facilities, as these are primarily meant to manage domestic liquidity.

The exception has been made for capital infusions for a bank’s actual operations.

For next week, the BSP will again offer P60 billion worth of term deposits, split into P40 billion for the week-long tenor and P20 billion for a month-long term.

ING Bank N.V. Manila senior economist Jose Mario I. Cuyegkeng said yesterday that liquidity growth has returned to a non-inflationary pace at 11.9% in December, allaying concerns on overheating.

BSP Deputy Governor Diwa C. Guinigundo has said that there is renewed interest for the month-long instruments as money supply returns to the banks after the holiday season.

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