BSP eases asset booking rules to help banks cope with market volatility
The central bank has released a fresh set of relief measures to help financial institutions deal with the COVID-19 pandemic, this time allowing banks to reclassify how they book their holdings of bonds to mitigate the effects of recent market volatility.
At the same time, the Bangko Sentral ng Pilipinas (BSP) also eased the rules on banks’ dollar-denominated assets, giving them greater leeway to comply with required resources to be set aside to protect against the risk brought about by these assets.
Both new rules—part of the package approved by the Monetary Board to buttress the Philippine financial system amid what is expected to be an unprecedented economic slowdown this year—are effective until Sept. 30, 2020, according to two memoranda signed on Wednesday by BSP Governor Benjamin Diokno.
The central bank chief earlier said that bank regulators would do “whatever it takes” to keep the country’s economy afloat during the Luzon-wide enhanced community quarantine that has seen businesses, large and small, shuttered, leaving only essential services running.
In his memo, Diokno said the Monetary Board approved the guidelines governing the reclassification of debt securities that were measured at fair value to the amortized cost category as part of the relief measures extended by the BSP in managing the financial impact of the COVID-19 pandemic.“For prudential reporting purposes, a BSP-supervised financial institution shall be allowed to reclassify its investments in debt securities that are booked under a fair value category to the amortized cost category, except for debt securities that are part of assets under management of a trust entity,” the memo stated.
Previous to this, banks were restricted from moving bonds from one book to another to prevent them from window-dressing their accounts, padding their earnings or hiding losses from examiners.
Meanwhile, the Monetary Board also approved the alternative treatment of net unrealized losses arising from marking-to-market of financial assets or liabilities and revaluation of third currencies to US dollar of assets in banks’ Foreign Currency Deposit Units (FCDU) for purposes of determining compliance with asset cover requirement.Under certain conditions, a bank that finds itself short of liquidity to meet the required asset cover ratio may, until Sept. 30, add back the “net debit amount” to total assets in the FCDU books for purposes of determining compliance with the 100 percent asset cover requirement, instead of transferring eligible foreign currency assets from its regular banking unit book. INQ
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