Both the BSP and the British-owned lender HSBC stressed this point in separate interviews on Wednesday when the SDA was last estimated at P1.3 trillion.
Arnulfo “Wick” Veloso, treasury chief at the Manila unit of HSBC, believes still more peso funds were to flow in significant amounts away from the local lending market and into the special facility the BSP has extensively used then and now to combat inflation.
“SDA levels will just continue to rise and it is always going to be a safe bet for both the retail and corporate sectors,” Veloso said.
He bared this development at the launching of the bank’s renminbi-denominated trade settlement facility whose future was seen to replicate the exponential growth of the Chinese currency as preferred currency for global trade.
Veloso said the renminbi, also known as the Chinese yuan, could become the third highest turnover currency in foreign exchange trades after the US dollar and the Euro area’s euro if it were fully convertible.
The rise in the use of the renminbi will offset the use of the US dollar, the European Union’s euro, the Japanese yen and the British pound which equal to 40 percent, 30 percent, 20 percent and 10 percent of the average daily global forex turnover-to-trade ratio, according to Veloso.
Deputy BSP Governor Nestor Espenilla Jr. acknowledged the SDA window offers local banks with excess liquidity the safe haven they require.
SDAs are some of the more compelling factors that have kept inflation in check as money supply growth have been deliberately kept at a pace in keeping with local output, or the gross domestic product in keeping with the target of up to seven percent this year.
“It’s a safe haven but low yield. What’s really needed are the kind of micro reforms or initiatives that create opportunities that deploy the funds [for productive endeavors]. In the absence of these opportunities and the banks being prudent, will go to safe havens,” he said.
At the moment, local banks continue to be drawn toward the SDA window where a one-week placement yields interest of over 4.25 percent and compares favorably against the 90-day borrowing rate of the national government of less than one percent.
Nevertheless, Veloso said bank lending continues to grow by around 12 percent at the moment and testament to the continuing attraction to deploy the banks’ resources to satisfy demands from both household and corporate borrowers.
That bank lending continues to grow was corroborated by the president of the Bank of the Philippine Islands, Aurelio Montinola III, who said bank lending should grow by at least 10 to 12 percent this year over 2010.
Espenilla reiterated there has to be real investments “that will create the stimulus and the opportunity for financing.”
He said there are no limits as to how much the banks can make by way of SDA placements although he was optimistic that as the infrastructure-focused Public-Private Partnership (PPP) program of the government finally takes off, the opportunity to deploy bank funds for more productive undertakings will have been sated.
“Clearly, loan rates are far more rewarding than SDAs,” Espenilla said.
