BSP further eases rules on forex transactions

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) has further relaxed and streamlined the requirements in foreign currency denominated transactions by allowing smaller banks as well as Islamic and digital banks to conduct foreign currency deposit unit (FCDU) functions.

BSP Governor Benjamin Diokno said the Monetary Board issued Resolution 1742 last Dec. 16 approving the amendments to the Manual of Regulations for Foreign Exchange Transactions and the Manual of Regulations for Banks governing the foreign currency deposit system.

Diokno said the changes aim to promote effective risk management in banks by relaxing and streamlining the requirements for foreign currency denominated transactions.

Under the revised guidelines, commercial, thrift banks, Islamic and digital banks can now accept foreign currency deposits as provided under Republic Act 6426 or the Foreign Currency Deposit Act of the Philippines.

The revised guidelines now allow universal, commercial and Islamic banks to operate electronic FCDU (eFCDU), while thrift, rural and cooperative banks are now authorized to operate as an FCDU.

FCDUs are local units of banks that are permitted to engage in foreign currency transactions, including foreign currency deposits.

Diokno said banks granted authority to operate an FCDU could accept deposits and trust accounts as well as deposits with banks abroad and offshore banking units (OBUs); grant short-term foreign currency loans and borrow foreign currency from other banks, and engage in foreign currency stand-alone derivatives referencing currency pairs not including the peso.

He said big banks could also engage in foreign exchange trading; issue letters of credit for non-resident importer in favor of resident exporter, and pay or accept or negotiate drafts or bills of exchange drawn under the letter of credit.

Furthermore, large lenders can also engage in direct purchase of export bills, securities lending activities as lenders, and repurchase agreements involving foreign currency denominated debt securities; invest in foreign currency denominated structured products issued by banks and special purpose vehicles; purchase foreign currency denominated debt securities under resale agreements; issue capital instruments, and engage in US dollar-denominated repurchase agreements with the BSP.

Likewise, Diokno added thrift, rural and cooperative banks could purchase foreign currency denominated debt securities under resale agreements with a maximum term of one year and the debt securities are classified as loans and receivables arising from repurchase agreements.

Mid-sized banks could also issue capital instruments and engage in US dollar-denominated repurchase agreement with the central bank.

The BSP chief said the regulator would impose sanctions for violations of the provisions on the terms and conditions of the US dollar-denominated repurchase agreements with the central bank.

The BSP said the foreign currency funds of the banks’ FCDUs and eFCDUs could be lent to regular banking units (RBUs) as long as no interest would be charged and should not exceed one year.

Latest data from the central bank showed it has granted eFCDU licenses to 43 universal and commercial banks as well as one thrift bank. It has also awarded three big banks, 20 mid-sized banks, as well as nine small banks with FCDU licenses.

In May last year, the central bank’s Monetary Board approved the first phase of reforms for the foreign currency deposit system by easing the asset cover standards of banks to improve flexibility in managing foreign currency deposit exposure.