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Thrift banks allowed to invest in foreign currency-dominated debt papers

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Although previously denied the privilege, thrift banks may now invest in foreign currency-denominated debt papers that are freely available in the market, the Bangko Sentral ng Pilipinas (BSP) said on Sunday.

The policy-setting Monetary Board of the BSP approved the guidelines making possible for the various thrift banks to engage in the business of investing in debt papers denominated in foreign currency.

Prior to the decision, only the regular commercial banks and the big universal banks were allowed to invest in foreign currency-denominated IOUs.

In a statement sent by email, the BSP said the decision was "in line with efforts to liberalize the rules and regulations on foreign exchange transactions" made imperative by sustained and heavy inflow of foreign capital into emerging markets like the Philippines in recent months.

Such flows have been driven by the unceasing search for optimum yield in a global environment in which the more advanced economies provide scant opportunities in contrast to emerging markets where the returns are more than ample.

Such flows have boosted not just the country's gross international reserves of some US$ 61 billion already but has pushed the balance of payments or BOP into surplus as well.

The BSP decreed the thrift banks may invest in foreign currency-denominated debt securities "except debt papers that were restructured during the period of moratorium in the payment of external debt" in the 1980s.

"Thrift banks shall invest in readily marketable foreign currency-denominated debt securities and the regular banking unit books shall be subject to risk management guidelines as well as other regulations government foreign exchange transactions such as allowable open forex position and reportorial requirements," it said.

Readily marketable foreign currency-denominated debt securities refer to foreign currency-denominated debt securities that are quoted in an active market with quoted prices which are readily and regularly available from an exchange, dealer, broker, etc. and which reflect actual and regularly occurring market transactions on an arm's length basis, the BSP added.

BSP Governor Amando M. Tetangco Jr. has often been asked what other forex liberalization measures they have in mind to dampen the impact of sustained forex inflows that has complicated the task of monetary management for many months now.

Sustained forex inflows have boosted the average value of the local currency, the peso, against the U.S. dollar to P43.955 per dollar in December last year from P46.028 per dollar in January.

Such was the flow of foreign capital into emerging markets that the BSP was forced eventually to adopt four sets of liberalization measures thus far.
Tetangco said the BSP has an "enhanced monetary tool kit" at its disposal that allows the authorities to respond to the challenges posed by elevated foreign inflows without resorting to adjustments in the current monetary policy settings. (PNA)




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