By Melissa Luz T. Lopez,
Senior Reporter

THE CENTRAL BANK has trimmed the weekly term deposit auction volume for September after demand for month-long tenor consistently remained below offer for the past months, as banks opted to channel their excess funds to loans and investments.

Banks can only bid for as much as P110 billion worth of 28-day term deposits by Sept. 6 after the Bangko Sentral ng Pilipinas (BSP) reduced the offering amid tepid demand for the longer tenor. On the other hand, the volume of seven-day instruments will remain at P40 billion, with the weekly total at P150 billion.

This breaks nine straight months of the BSP’s P180-billion offering which was first set in December.

Wednesday’s auction saw both the week-long and month-long tenors go undersubscribed as total tenders scraped P142.29 billion, dropping from the previous week’s P158.171 billion and again settling below the total offering.

The seven-day tenor saw pale demand as bids totalled P32.435 billion, down from the previous week’s P40.836 billion and failing to fill the P40 billion which the BSP wanted to sell. The average yield moved sideways to 3.3162%, a tad higher than the 3.3124% seen a week ago.

Tenders for the 28-day instruments also fell to P109.855 billion coming from P117.335 billion previously, logging below the P140-billion offer since April.

Despite this, rates sought by the banks steadied at 3.4961% yesterday, compared to 3.4958% fetched during the Aug. 23 exercise.

Players sought for returns ranging from 3.45-3.5%, hovering near the ceiling rate set by the BSP.

The term deposit facility (TDF) is the central bank’s main tool to capture excess money supply in the financial system, where banks can park idle funds for a small return.

The reduced volume also comes two months after trust entities stopped bidding for term deposits following central bank rules, which effectively reduced the amount of deployable funds for the TDF.

BSP Governor Nestor A. Espenilla, Jr. described the move as an “operational refinement” in order to reflect the continued undersubscription observed for the month-long tenor.

Pressed further, BSP Deputy Governor Diwa C. Guinigundo said the trend in the turnout of the weekly TDF auctions pointed to the need to recalibrate the volume offerings in order to better reflect the amounts which banks can place under the facility.

“The decision to reduce the volume offering for the 28-day TDF is based on the recognition that the sustained economic expansion has also given rise to higher demand for credit. Banks are now lending more to their clients instead of placing their excess funds with the BSP,” Mr. Guinigundo said in a text message to reporters, adding that the lenders also used the extra cash to buy dollars for their import requirements and prepay foreign debts.

He noted, however, that domestic liquidity remains ample.

“Thus, it is the excess liquidity of the banks that has declined recently and not the domestic liquidity per se,” Mr. Guinigundo added.

“BSP therefore does not have to do as much mopping up as before because funds are being used for productive uses instead of just being parked with the BSP.”

Domestic liquidity grew by 13.2% in June alongside a 19% surge in bank lending, according to latest central bank data.

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