Bangko Sentral gives banks until May 8 to heed forward currency rules

The Bangko Sentral ng Pilipinas on Friday told banks to comply with newly released rules on peso non-deliverable forwards (NDFs) by May, as monetary officials remain wary of its impact on foreign exchange transactions.  

 

In Circular No. 790, the Bangko Sentral said “banks which are presently in excess of the NDF exposure limits shall be given 2 months from the effectivity of this circular to comply with the prescribed limits” or until May 8.

 

Last December, the policy-setting Monetary Board approved a ceiling on foreign exchange forwards for local and Philippine-based foreign banks—to be implemented this month. http://www.gmanetwork.com/news/story/287816/economy/finance/bangko-sentral-puts-cap-on-risky-currency-deals

 

NDFs are dollar-based derivatives that are traded offshore and can be used for hedging and taking  currency positions. 

 

These are futures contracts between parties to buy or sell foreign exchange at an agreed price. NDFs maybe transacted by a bank with offshore or onshore counter parties.

 

The Circular—which formalized the new rule and immediately takes effect—said local banks were allowed to transact only up to 20 percent of their capital in NDFs, while foreign banks were given a limit of up to 100 percent.

 

Previously, such restrictions were only imposed on NDFs involving foreign currency, the Bangko Sentral noted.  It required banks to secure a license to deal or broker such transactions, with unlicensed banks only allowed to close out current positions. 

 

“Banks with peso NDF exposures at the time this circular takes effect but do not have at least a Type 2 derivatives license are not allowed to enter into further peso NDF exposures except to close out said positions,” the circular read.  

 

Bangko Sentral Governor Amando Tetangco Jr. earlier said speculative investments in the foreign exchange market dropped since its peak in 2010 following measures to curb betting in foreign exchange.

 

Such moves have been in place to temper volatility of the peso due to speculative plays. — SOA/VS, GMA News