BSP eases rules on FCDU transactions of savings banks

By Des Ferriols
The Philippine Star 04/23/2007

The Bangko Sentral ng Pilipinas (BSP) has agreed to ease its restrictions on the foreign currency deposit unit (FCDU) transactions of thrift banks, allowing them to invest in long-term foreign currency debt securities.

The BSP said over the weekend that the  Monetary Board (MB) has approved the proposal of the Chamber of Thrift Banks to allow thrift banks with FCDU licenses to invest in long-term foreign currency debt securities.

Under existing BSP rules, BSP Governor Amando M. Tetangco Jr. explained that thrift banks with FCDU licenses are required to cover their liabilities with assets in the form of loans and short term securities.

The idea was to require banks to match all their foreign currency liabilities with various qualified assets as a cushion against overexposure to foreign currency risks.

At present, the BSP only allows foreign currency deposits with the BSP, short term foreign currency deposits with foreign banks, offshore banking units and other FCDUs.

Also allowed as cover were short-term foreign currency loans authorized by the BSP except those classified by the BSP as bad or uncollectible debts; investments in foreign currency-denominated debt instruments; foreign currency notes and coins on hand; foreign currency checks and other cash items; foreign currency swaps; foreign currency interests receivables; and, government securities purchased under resale agreements.

According to Tetangco, however, the MB has decided thrift banks could be allowed to invest in long-term foreign currency securities that could be denominated in any currency.

"They are currently allowed to use short-term securities as eligible covers but now we are allowing longer-term marketable securities," Tetangco said. "The market has changed and even long-term securities are now easily traded and therefore liquid enough to be used as cover."

According to Tetangco, the MB also approved a proposal to make it easier for universal and commercial banks to comply with rules requiring banks to allocate at least six percent of their total loan portfolio for microfinance lending.

Tetangco said the MB agreed to allow universal and commercial banks to engage in wholesale microfinance lending to non-bank microfinance entities and count them as alternative compliance with the requirement.

Tetangco said the BSP recognized the difficulty of large foreign banks, in particular, to engage in microfinance lending since this required expertise in microlending.

"This means that if universal and commercial banks lend wholesale to microfinance institutions that are not banks, we would count that as alternative compliance with the mandatory allocation for microfinance lending," Tetangco said.

 

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