Bangko Sentral limits trust banking units' access to SDA facility

Published May 20, 2013 3:32pm

(Updated 5:24 p.m.) In its latest move to fine-tune monetary tools, the Bangko Sentral ng Pilipinas is limiting the types of funds trust entities may put into the central bank special deposit account (SDA) starting next year.

Central bank Memorandum No. 2013-021 dated May 17—but released Monday—disallows banks' trust department and trust companies to make deposits into the SDA window—a tool created to mop-up excess liquidity—except for Unit Investment Trust Funds (UITFs) and fund management activities of trust accounts.

The new rule takes effect “beginning January 1, 2014.”

Eugene Leow, economist at DBS Bank Ltd. in Singapore, said in an e-mail message the move may stoke the local economy should demand for loans increase.

“By restricting access to the SDA further, BSP expects that some of these funds will translate into loan growth for businesses, thereby spurring the real economy,” he said, adding that “a lot depends on the demand for loans.”

The economist noted that the new restrictions “will also reduce costs for the BSP, and reduce the need for recapitalization.”

The latest move is part of monetary authorities' “continuing efforts to fine-tune its monetary policy instruments and so gain greater flexibility in staging monetary operations. This would also ensure adequate liquidity for economic activity,” Bangko Sentral Governor Amando Tetangco Jr. wrote in the Memorandum.

“With respect to pooled funds, only Unit Investment Trust Funds shall be allowed access to the SDA facility,” the Memorandum read.

UITFs are pooled funds from investors, which are placed in stocks, bonds, money market instruments and similar assets by a trust banking group's fund manager.

“Access by trust departments/entities to the SDA facility shall be limited to the fund management activities of trust accounts under existing regulations,” the Memorandum read.

Trust accounts are funds held by trust companies or banks for specific purposes, like payments for property tax and insurance premiums.

Closed to fiduciary business

Bangko Sentral said fiduciary business—or those benefiting only one investor—including agency accounts and investment management activities “shall no longer have access to the facility.”

Banks and trust entities are instructed to submit a report on their SDA placements on May 31.

They were also told to decrease by 30 percent all SDA placements inconsistent with Memorandum No. 2013-021 by July 31. Any amount exceeding that ceiling should be withdrawn by November 30.

The central bank already slashed SDA yields thrice this year to 2 percent from rates priced at a premium over policy rate of 3.5 percent last January.

Last year, it prohibited banks from putting funds owned by their foreign clients into the SDA window.

Currency traders interviewed by GMA News Online said the memorandum will gradually weaken the peso as fund managers are forced to look into higher yielding instruments elsewhere.

“This will flush pesos into the system and demand for dollars will increase. Fund managers will look into other assets overseas as government securities are low yielding” a trader said.

Central bank losses ballooned to P95.4 billion loss in 2012 from P33.7 billion a year earlier on heavy dollar purchases to smoothen exchange-rate fluctuations, the Bangko Sentral earlier said.

Tetangco earlier said the moves were intended to flush unused money into “more productive uses of the economy.” Analysts and economists noted that further cuts in SDA yields within the year are highly likely.

The SDA facility was introduced in November 1998 to better manage liquidity in the face of strong foreign exchange inflows. Banks had since used the facility to park excess funds and generate interest income.

Following moves to tighten the window, SDA placements stood at P1.858 trillion as of May 3 from P1.933 trillion on April 26. — Siegfrid Alegado/VS, GMA News

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