Banks ordered to report foreign borrowing plans

Amid concerns over a potential surge in foreign capital inflows and its destabilizing effects, the Bangko Sentral ng Pilipinas has told banks and other organizations intending to source funds from offshore to disclose their foreign borrowing plans for 2013.

According to the BSP, estimates on inflows of foreign currencies arising from borrowings will help give it a better grasp of the additional liquidity about to enter the economy, which should be carefully managed.

Knowledge of estimated inflows in the form of borrowings also will give monetary officials a rough idea of how much of the future inflows of foreign capital would be in the nature of portfolio investments.

Information on foreign currency inflows aids in the preparation of appropriate policies against the destabilizing effects of excessive liquidity within the economy.

In a public notice posted on its website, the BSP said entities that intend to borrow in foreign currencies next year should submit their plans before the end of the month.

All private firms that intend to borrow at least $10 million next year are required to submit the report on their borrowing plan. Private enterprises that plan to borrow smaller amounts from foreign creditors are encouraged to also disclose their plans.

Additionally, all government entities that intend to borrow offshore next year are required to report their borrowing plans, regardless of amount, the BSP said.

Economists said there is a threat of a surge in foreign capital inflows to emerging economies like the Philippines.

One likely reason for this surge in inflows is the potential worsening of the sovereign debt and banking crisis in the eurozone. Economists said such a situation could prompt yield-seeking investors to go for emerging market assets, such as those from the Philippines.

Another could be the implementation of stimulus measures, such as through buying of bonds, by the European Central Bank or the US Federal Reserve. Economists said portions of the liquidity to be injected to the US and eurozone economies could be used by the fund holders to invest in emerging market assets.

Although foreign portfolio investments help make the country’s capital markets vibrant, excessive flows have destabilizing effects, like causing a steep and sudden appreciation of the peso and faster inflation.

BSP Governor Amando Tetangco Jr. said the central bank is keenly monitoring developments that could affect the level of foreign capital inflows to the Philippines. He said the latest assessment of the BSP is that the external environment remains weak and foreign capital inflows are volatile.

“The assessment [of a weak external environment] remains. If you are looking at Europe, for instance, you still have this risk-on, risk-off mode,” Tetangco said, referring to the view that the eurozone crisis could either ease or worsen depending on whether or not measures being undertaken by European officials would succeed in addressing structural problems.

Data from the BSP showed that in July, foreign portfolio investments posted a net inflow of $963 million in July, over three times the $302 million registered in the same month last year.