BPI adds derivatives offers

BSP approves planned forex, interest rate options


Ayala-led Bank of the Philippine Islands has rolled out more hedging instruments to help clients deal with financial market volatility.

BPI executive vice president Antonio Paner said the bank had obtained approval from the Bangko Sentral ng Pilipinas to add foreign exchange and interest rate options to its array of derivatives offerings.

While BPI has a license from the BSP to offer derivatives—or products whose values are based on underlying indices or instruments—Paner said there was additional approval needed for specific product offerings.

BPI has long been offering plain derivatives like forwards and swaps, and Paner said foreign exchange (FX) and interest rate options would widen the bank’s product range.

Importers and exporters are among those with potential use for options, Paner said.

“At least they can hedge against rising or declining interest rates,” he explained.

An option represents a contract sold by one party to another party in which the buyer has the right – but not the obligation – to buy (call) or sell (put) a security or other financial asset at an agreed-upon price (the strike price) during a certain period or on a specific date.

For now, Paner said the volume of hedging transactions remained small but given rising volatility, there may be greater requirement for this instrument.

He said that interest rates, for instance, may still ease over the near term given the additional liquidity to be released from special deposit accounts.

But when US Treasury rates rise, he said local interest rates would inevitably follow suit.

Meanwhile, forward is an agreement to buy an underlying asset from another party at a pre-determined price for delivery at a later time.

Swap, on the other hand, refers to the exchange of one security for another to change the maturity, quality of issues, or because investment objectives have changed.

In a briefing last week, BPI president Cezar Consing said there should be more clarity this semester on the direction of interest rates.

“Over time, it will be clear whether this liquidity is here to stay or change. Everyone is betting interests rates will creep up with expectations of withdrawal in global liquidity,” he said.

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