The central bank’s restriction in the use of special deposit accounts is forcing banks to lend more and not just rely on treasury trading.
The restriction also resulted in higher growth in deposits with banks’ trust departments parking funds in ordinary deposits.
With banks awash in cash, they are now more aggressive in lending to earn profits.
Nicholas Antonio Mapa, associate economist at the Bank of the Philippine Islands said “with all that liquidity and very little options save for a 2.0 percent to 2.5 percent return on SDA, banks were forced to chase growth through booking of loans as treasury trading was unable to bring in the high profit seen in previous years.”
The central bank reported that the Philippine banking system’s total deposits in the third quarter of 2014 amounted to P6.4 trillion, 16.3 percent higher than the year-ago level of P5.5 trillion.
“The rapid growth could be attributed to the shift of investors’ funds from the BSP’s SDA facility to bank deposits as a result of the fine-tuning of access of trust departments/entities to the BSP SDA facility as well as steady corporate profits, and robust economic expansion,” the central bank stated.
In a memorandum in May last year, the BSP ordered banks that placements of trust departments/entities under the investment management accounts (IMA) must be reduced by at least 30 percent by end-July 2013 and the remaining balance must be phased out by end-November 2013.
By January 1, 2014, the central bank said placements of trust departments/entities in the SDA facility must consist only of funds from trust accounts allowed under existing regulations.
The more aggressive shift in lending can be gauged in October data that showed outstanding loans granted by commercial banks, excluding reverse repurchase (RRP) placements with the central bank, rose 21.1 percent year-on-year. Including the RRPs, bank lending expanded by 20 percent from a year earlier.
Meanwhile, the BSP’s economic and financial developments report also showed that the level of other deposit liabilities also rose double-digit during the period.
It said that savings deposit of banks continued to account for nearly half of the funding base of banks as it registered a 16 percent growth.
Demand deposits expanded year-on-year by 18.8 percent while time deposits increased by 14.7 percent from the level posted a year ago.
“Savings and time deposits continue to be the primary sources of funds for banks,” it concluded.