Regulators have liberalized smaller banks’ ability to trade in foreign exchange markets, in line with efforts to make it easier for migrants to send money home and to develop the Philippine capital markets.
The Bangko Sentral ng Pilipinas (BSP) announced this week the approval of two new regulations governing banks’ participation in foreign exchange markets.
The first allows rural and thrift banks to buy and sell foreign currencies, while the second lets thrift banks act as dealers of hedging instruments known as deliverable foreign exchange forwards.
In a statement, the BSP said authorizing rural and thrift banks to buy and sell foreign currencies would benefit families of Filipinos overseas.
“This will enable these banks to play a more active role in the remittance business,” the BSP said.
Allowing more financial institutions to trade foreign currencies is part of the central bank’s strategy of making it easier for migrant workers to send money to their families in the Philippines.
Together, thrift and rural banks account for about 94 percent of all banks in the Philippines, although the bulk of the industry’s deposits and assets are held by the nation’s 36 universal and commercial banks.
In terms of physical reach, small banks account for about 44 percent of all bank branches in the country.
Last year, remittances made up about a tenth of the Philippine economy. This year, remittances are seen growing by 5.5 percent to a record high of about $24 billion.
In the meantime, the second regulation approved by the BSP allows banks to hedge their clients’ foreign exchange positions to better protect themselves from losses due to changes in currency values.
Under the new rule, qualified thrift banks will now be able to act as agents for deliverable foreign exchange forwards, which are instruments that allow banks to lock in prices of currencies they need.
“To ensure that banks are undertaking activities in a prudent manner, they will be covered by regulations prescribing capital for market risk,” the BSP said.
“In addition, thrift banks are expected to have appropriate practices for the selling and marketing of foreign exchange forwards to their clients,” it added.