The Bangko Sentral ng Pilipinas said it had deferred the implementation of the revised accounting standards for banks’ financial instruments to January 2015.
The new standards were supposed to take effect next year. The BSP, however, decided to defer the implementation of the revised standards considering the volatility of the financial markets worldwide.
The revised accounting standards—called the Philippine Financial Reporting Standards (PFRS) 9—are seen as less complex and stringent than the existing rules.
“The BSP’s move is a reflection of its commitment to continually align existing regulations with globally accepted standards, to the greatest extent possible,” the BSP said in a statement.
Under current practice, banks are required to properly classify their portfolio assets to avoid window dressing. A portfolio of financial instruments must be properly declared either as “held to maturity (HTM)” or “available for sale (ASL).”
HTM assets have fixed valuation, while ASL assets are valued based on market prices, which move up or down from time to time.
Current rules state that if a bank sells at least one percent of a supposedly HTM portfolio, the entire portfolio must be reclassified as ASL.
The reclassification of financial instruments is regulated to ensure that the practice is not resorted to by banks just to make their balance sheets appear good.
The PFRS 9 makes the rules governing the classification of financial instruments less stringent.
For instance, PFRS9 allows the reclassification of financial instruments if a bank can prove that reclassification is “a rare occurrence and is not a regular activity.”—Michelle V. Remo