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THE Bangko Sentral ng Pilipinas (BSP) said it would
allow lenders to forego deducting net unrealized losses in the
calculation of the asset cover requirement of their foreign currency
deposit units (FCDU).
In a briefing, BSP Governor
Amando Tetangco said the Monetary Board has approved an adjustment
in the items eligible as asset cover for the calculation of the 100
percent requirement. This means banks don’t have to reflect losses
from the drop in the price of their securities to meet their FCDU
cover.
At present, an FCDU should extend
loans or buy from the foreign exchange market to support the 100
percent cover.
“With the effectivity of the
circular, an unrealized loss can be added back to the asset cover of
the FCDU,” Tetangco said.
Under the revised guidelines, he
said the net unrealized losses arising from the marking to market of
financial assets and liabilities and revaluation of third currencies
under the FCDU and expanded FCDU will not be deducted from their
asset cover until March next year.
“This is another form of relief
for the banks. This should also help to stabilize [the] foreign
exchange,” he said.
The measure is in addition to a
series of moves the BSP undertook to mitigate the losses banks have
been incurring as a result of the global financial crisis.
He said the Monetary Board also
approved additional guidelines on the reclassification of financial
assets particularly on specific directions covered by the amendments
to accounting standards.
The relaxation of the accounting
rules will help banks to mitigate the impact of the global credit
crisis on their balance sheets after Philippine bonds or debt papers
tanked.
Tetangco said the guidelines
clarify that financial assets intended to be reclassified out of the
held for trading category due to the rare circumstances and change
in intention have to be reclassified all at the same time.
Financial institutions may look
back anytime from July 1 to November 14 this year for selecting the
effective date of their reclassification.
Tetangco said the BSP also
approved an additional one-time regulatory relief to financial
institutions pertaining to their credit notes linked to foreign
currency denominated debt securities issued by the Republic of the
Philippines. The Monetary Board has allowed these to be reclassified
to hold to maturity or unquoted debt securities.
Moreover, debt instruments
previously mandated to be lodged under available for sale because of
tainting might also be reclassified to held to maturity.
The deadline was extended from
October 31 to November 14 in view of the extension granted by the
Financial Reporting Standards Council in its adoption of amendments
to International Accounting Standards 39 and International Financial
Reporting Standards.
--Maricel E. Burgonio
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