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Tuesday, March 19, 2024

BSP to ease rules on foreign exchange loans

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The Bangko Sentral ng Pilipinas will soon issue more liberalized rules on foreign exchange and offshore loans of the private sector, Governor Nestor Espenilla Jr. said Monday.

Espenilla said foreign exchange regulations were being overhauled to achieve more efficiency and ease of doing business.

“The BSP will soon release an exposure draft on the liberalized rules on FX loans and offshore loans of the private sector. This will refocus the registration process to primarily data gathering and minimized documentary requirements,” Espenilla said at the sidelines of an ING-Financial Executives of the Philippines forum in Makati City.

“The liberalization of FX regulations is embedded in the broader thrust for a better organized FX market. The sequence of reforms aims to encourage innovation, improved transparency and price discovery, and enhanced market conduct,” Espenilla said. 

Espenilla said the regulator was doing its best to issue the rules this year. “Aside from the holidays, there are also formalities… But definitely that should come out this year,” he said.

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Espenilla, who assumed the top BSP post in July,  vowed to pursue further foreign exchange liberalization. He said banks could not sufficiently fund increasing requirements of the domestic economy despite the continuous growth in lending.

Espenilla said the reforms he intended to pursue aimed to make foreign exchange transactions “more risk-based but transparent.”

He said that “notwithstanding the waves of liberalization that the BSP has announced in the past, we recognize that the foreign exchange market today remains restrictive, difficult, opaque, shallow.”

“It is a throwback to time when FX was scarce and reserves were meager and market confidence was very low,” he said.

Bangko Sentral Deputy Governor Diwa Guinigundo said earlier the further forex liberalization was not just for capital flow management, but to align the country’s foreign exchange regulatory system with expanded financial transactions.

“I mean, in view of greater global financial integration, [so] we need to align ourselves in what is happening globally,” Guinigundo said.

The Bangko Sentral had already implemented several foreign exchange liberalization measures since 2007 that resulted in the opening up of the foreign exchange regime.

These measures included increasing from $5,000 to $10,000 the limit on allowable outward investment that can be bought from banks and other foreign exchange entities without supporting documents; increasing the allowable dollar purchases from banks by residents for non-trade current account transactions (without the need for supporting documentation) and outward investments (without the need for BSP approval).

Espenilla earlier said the regulator would also roll out the repo trade this month as part of the peso debt market development roadmap aimed at establishing an integrated financial market in the country.

A repo, short for repurchase agreement, allows a dealer to sell and repurchase short-term government securities such as treasury bills to a lender at a specified future date and an agreed price. Repos are said to provide lenders low risk and are usually used to raise short-term capital.

Espenilla said the Securities and Exchange Commission already approved the accreditation of a self-regulated organization or a private institution that would oversee the repo market.

 

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