Bangko Sentral lets thrift, rural and cooperative banks do forex transactions

Thrift, rural and cooperative banks may now buy and sell foreign currencies as part of regular banking services, after the Monetary Board approved the amendments to the powers and scope of authorities of banks.

 

"This will enable these banks to play a more active role in the remittance business," Bangko Sentral ng Pilipinas (BSP) said in a statement on Wednesday.

 

The central bank noted the amendments classify thrift, rural and cooperative banks as authorized agent banks (AAB) under the Manual of Regulations for Foreign Exchange Transactions (MORFXT) "thus allowing such entities to buy and sell foreign exchange as part of the banking services these financial institutions can offer its clients."

 

As AABs, they should strictly abide by the provisions of MORFXT and are also expected to manage risks.

 

According to the central bank, buying and selling of foreign exchange include additional market risks, so there should be "ample prudential safeguards" in place.

 

"Monitoring of foreign exchange exposures are adequately captured in the BSP prudential reports," it said.

 

During on-site examinations, the central bank will evaluate compliance and assessment of risk management and risk exposures.

Derivatives

 

In a separate statement, the Monetary Board, the central bank's policy-setting arm, also approved amendments to the regulations governing the derivatives activities of banks.

 

Thrift banks with an existing authority to issue foreign letters of credit and pay and negotiate import and export draft bills of exchange may now apply for a Type 2 Limited Dealer authority to operate as dealer of deliverable foreign exchange forwards.

 

Bangko Sentral said an applicant bank must demonstrate "adequate competence" in its general operations, hold capital commensurate to the risk assumed or to be assumed from, and maintain a risk management system.

 

At present, only universal and commercial banks are allowed to offer their own products to clients under a Type 2 or Limited Dealer and a Type 1 or Expanded Dealer Authority.

 

"It is expected that policy amendment will expand the FX risk hedging options of SMEs to the extent that they are better served by thrift banks," Bangko Sentral noted.

 

After the Type 2 authority is approved, a thrift bank can offer FX forwards to clients subject to certain conditions "to ensure that transactions solely relate to clients' trade-related requirements."

 

Sough for comment, BPI Family Savings Bank president Jose Teodoro Limcaoco said this will provide their clients the ability "to hedge their foreign exchange exposures."

 

"The ability to manage FX exposure will make our clients more competitive," he said in a text message to GMA News Online.

 

Chamber of Thrift Banks executive director Suzanne Felix in a separate text message said: "We welcome this because we can be more competitive as we can now offer more products to our clients." – VS, GMA News