MANILA, Philippines — The Bangko Sentral ng Pilipinas is reviewing the business model used by banks in determining savings deposit rates and time deposit rates following the first two surveys conducted throughout the country to identify locations which show banks in the area relying "excessively" on high-cost deposits.

Under Bangko Sentral ng Pilipinas (BSP) Circular No. 640, a bank is considered offering high-cost deposits/borrowings if the effective interest rate paid on said deposits/borrowings and/or non-cash incentives is 50 percent over the prevailing comparable market median rate for similar bank categories, maturities, and currency denomination.

To discuss certain provisions of the circular, the BSP met with the Bankers Association of the Philippines (BAP), Chamber of Thrift Banks (CTB) and Rural Bankers Association of the Philippines (RBAP) to clarify the manner in which the BSP was enforcing the rules especially with respect to unsafe and unsound banking practices.

BSP then initiated a new survey called "Survey on Deposit Interest Rates Per Province" and the first survey was conducted in the last quarter of 2010, however the results were too rough from the raw data that the banks themselves provided the BSP.

Based on the most recent survey which was conducted in the first quarter of 2011, the BSP noted increased variability as monies are being shifted from savings to time deposits and from a lower to a higher deposit balance category. This suggests that while savings deposits are more homogenous, there are differences in time deposit rates across geographical locations, tenors and/or size of deposit balance, the report explained.

The survey also concluded that there are no statistical differences in interest rates provided by universal and commercial banks versus the small thrift banks, however there are some marked differences in the deposit rates offered by big banks versus rural banks, and thrift banks compared to rural banks.

The raw data used to calculate the median rates have been provided by the BAP, CTB and RBAP. While the BAP and CTB are providing data to meet survey deadlines, RBAP which have more members are encountering delays in

The BSP is still fine tuning the interest rates monitoring especially the response rate which officials found dismal. The first quarter survey methods needed to be improved upon.

Sources said the BSP plans to make the survey available to the Philippine Deposit Insurance Corp. and the public since the information will encourage competition and transparency in the banking industry. For the BSP especially, the survey will serve as a basis for initiating a problematic bank into the prompt corrective action framework, which is the first step in assisting bank recapitalize.