BPI to offer more hedging products

MANILA, Philippines–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 and treasury Antonio Paner said the bank had obtained approval from the Bangko Sentral ng Pilipinas to add foreign exchange and interest rate options into its array of derivatives offering.

While BPI is among the banks with an existing license from the BSP to offer derivatives–or products whose values are based on values of underlying indices or instruments–Paner said there was additional approval needed for specific product offerings.

While the bank has long been offering plan-vanilla derivatives like forwards and swaps, Paner said foreign exchange (FX) and interest rate options would be additional instruments that the bank could offer now.

Importers and exporters are among those with potential use for options, Paner said. “At least they can hedge against rising or declining interested rates,” he said.

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 of time or on a specific date.

For now, Paner said volume of hedging transactions remained small but given rising volatility, there may be greater requirement to hedge their exposure.

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 inevitable 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 cleared 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.