There is enough funds for NG needs, says Security Bank


The cash-rich banking system has the available funding for National Government requirements such as continued anti-pandemic response, according to a bank official.

Security Bank Corp. executive vice president and treasurer, Raul Martin Pedro, said the financial system is also deep enough to soak up government borrowings, both from domestic and foreign sources.

Banks have P1.626 trillion of funds parked in the Bangko Sentral ng Pilipinas (BSP) as of the reserve week of October 26 to 30. About P832.118 billion are in term deposits and another P419 billion and P305 billion are in overnight cash or deposits and reverse repurchase facility (RRP), during this period. The RRPs are cash that banks lend to the BSP.

With this much liquidity, Pedro said money supply will remain elevated for some time and they could supply what the government needs in terms of funding.

For 2021, the government has a P3 trillion borrowing plan, of which P2.58 trillion are domestic borrowings and $8.25 billion or P397 billion are the expected foreign borrowings.

Pedro said that with P1.23 trillion maturing bonds next year, there will be a net supply of new borrowings amounting to P1.25 trillion from the local market as well.

“Can the system absorb it? The answer is yes,” he said during the bank’s annual economic forum on Thursday. He also said that even with the size of borrowings that government intends to tap for 2021, it will not “crowd out the private sector from all available funding sources”.Since banks have P1.626 trillion cash with the BSP, and this was part of liquidity released by the BSP amounting to P1.9 trillion, Pedro said that "with all the cash that the central bank has pumped in, banks are sitting on a lot of cash and as a result, we placed them with the BSP.”

And, with this cash and knowing how much the government needs to borrow next year for financing COVID-19 programs including payment for the vaccines, Pedro said the banking system has the liquidity to lend to the government.

“We believe that with the significant amount of cash in the system, the market can actually fund the National Government (borrowings),” he said.

Since the government also needs to borrow in foreign currencies, the amount of borrowing and its impact on the national debt will be manageable with US rates holding steady for a long time, or up to 2023 to 2024.

“Given the optimism of economic growth, the possible vaccine in the second half of next year, and (US president-elect) Joe Biden’s win which (means) a more engaging US government with regards to trade … we expect the yield curve will go steeper (with US Federal Reserve rate) at zero to a quarter percent, the longer term rates or the 10- and 30-year rates will start moving up by at least 25-30 bps (basis points) until the end of next year,” said Pedro.

And with that outlook on US long term rates, Pedro added that they “see that ROP prices will remain stable and with a recovering economy, we believe the credit spreads will remain stable as well.”

As for the Philippine economy, Pedro said the low mobility and the “underwhelming” government spending will continue to dampen output activity, and they estimate a negative 9.9 percent GDP for 2020 and 7.1 percent growth for 2021. “Economic prospects for the fourth quarter 2020 and first quarter 2021 will likely be challenging,” he said.

For 2022, Security Bank projects GDP of 5.3 percent and by 2023, they expect the economy will go back to its pre-pandemic growth momentum of above six percent, said Pedro. “Firmer market conditions will likely be in the second half of 2021. Better output, demand recovery and improved trade will carry recovery into 2022,” he added.

Pedro thinks the BSP will keep the policy rate stable “over a couple of quarters” with an economy that will slowly recover. But for now, he said the central bank has “done a lot of heavy lifting (but) fiscal support is needed in order to spur further economic growth.” The BSP has reduced the policy rate by 200 bps since February this year. The benchmark rate of a flat two percent is in negative real rate territory with inflation rate at 2.5 percent.

“BSP action (of rate cuts, etc.) is forcing investments (and) encouraging borrowing on the back of real negative interest rates,” added Pedro. “(The) only concern is uptick in virus cases worldwide and renewed lockdowns provide downside risks. (But) vaccine development news are providing some upsides.”