In keeping with the nature of the BSP deposit facility as a monetary policy instrument for managing domestic liquidity in the financial system, the Bangko Sentral decided to discontinue the access of trust entities to the BSP Overnight Deposit Facility (ODF) and Term Deposit Facility (TDF). The new rule takes effect beginning 1 July 2017.
To ensure an orderly transition, the Monetary Board (MB) approved a phased implementation of the trust entities’ restricted access to the ODF and TDF windows. A Memorandum Guideline following the MB approval will be issued providing among others, that all ODF and TDF placements of trust accounts as of 30 September 2016 shall be reduced to 50 percent and 30 percent by 31 December 2016 and 31 March 2017, respectively. Any remaining ODF and TDF placements shall be terminated by 30 June 2017.
The latest move on the access restriction is part of the BSP’s continuing effort to rationalize the use of the deposit facility as a liquidity management tool. In 2012, the BSP issued a Guideline clarifying that the Special Deposit Account Facility (the forerunner of the ODF and TDF) is a liquidity tool and should not be made available for opportunistic investment activities. In keeping with the contractual nature of the deposit facility and thus shall be governed by the intent of the contracting parties, banks and trust entities were not allowed to invest in the facility using funds from non-resident sources. In 2013, the BSP issued a Guideline to trust entities further limiting access to the SDA to their trust accounts only.
The BSP has been in consultation with the trust industry so the market is prepared for this access restriction. Moreover, the BSP has constantly reminded the market that the BSP deposit facility should not be used as an investment outlet. BSP Governor Amando M. Tetangco, Jr. said that this change is good for the industry as “it will encourage trust entities to grow by developing the expertise in fund management, instead of simply being passive and placing funds with the BSP to earn a decent return”. This move is also expected to help deepen the domestic capital market, which in turn could help spur economic activity.