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NEWS UPDATES Asean Affairs        18  May 2011

Idle money in Philippines

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The amount of idle money in the Philippines financial system surged in the first quarter.

Data from the Bangko Sentral ng Pilipinas (BSP) showed that financial institutions’ placements in the central bank’s special deposit account (SDA) increased by about 89.4 percent year-on-year to reach P1.5 trillion at end-March from the P785.2 billion posted in the same period a year ago. The SDA is one of the tools used by monetary officials to siphon off excess liquidity in the financial system.

During the Asian financial crisis, the BSP decided to change the rules governing its SDA, allowing trust departments of banks and non-bank government-owned and -controlled corporations access to this facility.

SDA offers interest rates higher than yields on government securities of the same tenors. With measures such as the SDA, the central bank aims to bring down the growth in domestic liquidity or M3 to below 20 percent.

The 4 percent rate had been enticing banks to place their money in the vaults of BSP through the SDA instead of lending it out for other purposes.

Bank placements under the BSP reverse repurchase (RRP) window reached P231.4 billion, an increase of P71.9 billion from a year ago.

The closely watched domestic liquidity or M3 grew by 10.3 in March from 9.8 percent in February to reach P4.3 trillion.

On a monthly, seasonally adjusted basis, M3 picked up 1.5 percent from a growth of 1.4 percent in the previous month.

Alongside the acceleration in money supply, bank lending also grew at 14.1 percent year-on-year in March from a growth of 12.3 percent the previous month.

Also, outstanding loans of commercial banks inclusive of RRPs expanded at a faster rate of 16.8 percent in March from 13.6 percent a month earlier to P2.6 trillion.

On a month-on-month seasonally adjusted basis, commercial banks’ lending rose by 1.5 percent for loans net of RRPs and by 0.6 percent for loans inclusive of RRPs.


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