PH banks free to assume more dollar risk under new BSP rules

The central bank has eased a rule that had required financial institutions to keep a 100-percent buffer of assets for their foreign currency liabilities on a daily basis, saying that deficiencies for so-called asset covers on certain days may be offset by surpluses on other days.

In a statement, the Bangko Sentral ng Pilipinas (BSP) said the Monetary Board relaxed this asset cover requirement for banks with expanded or foreign currency deposit units to provide these institutions “with greater flexibility to manage their foreign currency exposures.”

More importantly, the country’s top monetary regulator signaled a shift in its operating philosophy, saying financial institutions that it supervises would be given greater leeway in assessing the kind and level of risk they would want to assume, as opposed to the previous scheme where the regulator set a uniform standard for everyone to follow.

“These and forthcoming regulatory amendments are aligned with the thrust to veer away from a compliance mindset and embed risk-based principles in all aspects of the BSP’s approach to supervision,” the central bank said.

Existing regulations require banks to maintain a 100-percent asset cover for their foreign currency liabilities in their dollar dealing units at all times to ensure that they have sufficient foreign currency-denominated assets to service withdrawals of deposits and meet payments denominated in foreign currency.

The BSP said that, under the new rules, banks shall be allowed to offset any deficiency in the asset cover incurred on one or more days of the week with the excess cover that they may hold on other days of the same week and the immediately succeeding week.

“This provides the banks greater leeway in managing their foreign currency exposures in accordance with their risk tolerance and internal policies,” the regulator said.

The Monetary Board has likewise approved the alignment of the licensing process for applications for FCDU authority with the risk-based licensing framework being implemented by the BSP since early last year.

The central bank said the requirements for a bank to operate a unit that deals with dollar assets have been streamlined to promote ease of doing business, marking “the first phase of reforms” toward regulatory relaxation from the standards previously imposed by the Foreign Currency Deposit Act.

Edited by TSB
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