The Monetary Board, the policy-making body of Bangko Sentral ng Pilipinas, eased the asset cover requirement on banks with expanded/foreign currency deposit units to provide them with greater flexibility to manage their foreign currency exposures.
Existing regulations require banks to maintain a 100-percent asset cover for their foreign currency liabilities in the E/FCDUs at all times to ensure they have sufficient foreign currency-denominated assets to service withdrawals of deposits and meet payments denominated in foreign currency.
“Under the new rules, banks shall be allowed to offset any deficiency in the asset cover incurred on one or more days of the week with the excess cover that they may hold on other days of the same week and the immediately succeeding week,” the BSP said Thursday.
“This provides the banks greater leeway in managing their foreign currency exposures in accordance with their risk tolerance and internal policies,” it said.
The board also approved the alignment of the licensing process for applications for E/FCDU authority with the risk-based licensing framework being implemented by the BSP pursuant to Circular No. 1031, which was issued in February 2019.
The operation of an E/FCDU is considered as a Type A permissible activity under the framework. The attendant requirements have been streamlined in order to promote the ease of doing business.
The BSP said the changes in the E/FCDU regulations constitute the first phase of reforms to the longstanding rules implementing R.A. No. 6426 or the “Foreign Currency Deposit Act of the Philippines.” Julito G. Rada
“These and forthcoming regulatory amendments are aligned with the thrust to veer away from a compliance mindset and embed risk-based principles in all aspects of the BSP’s approach to supervision,” it said.
Foreign currency-denominated loans granted by banks as of end-December 2019 reached $18 billion, up by $1.4 billion or 8.7 percent from $16.6 billion a year earlier.
“The growth in loans may be attributed to borrowing firms’ higher working capital requirements,” the regulator said in a statement.