FCDU investment options expanded

REPORT FROM BUSINESSWORLD Banks operating foreign currency deposit units (FCDUs) may now use long-dated and foreign-issued debt instruments to cover their foreign currency liabilities, the central bank said last week. Bangko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco, Jr. said the policy-making Monetary Board had approved the relaxation during a meeting on July 5. "We have aligned the eligibility requirement for [foreign exchange] cover to include debt instruments regardless of maturities provided these are readily marketable. We allowed FCDUs to invest in foreign currency-denominated securities regardless of maturities," Mr. Tetangco told reporters. Under present rules, depository banks under the foreign currency deposit system must maintain 100% cover for their foreign currency liabilities at all times. Every $1 deposit must be secured by an equivalent $1 asset. Bank-owned FCDUs were previously limited to investing in so-called readily marketable securities with short-term maturities. The decision to widen the coverage of the rules on FCDU reserve-eligible instruments would give banks more leverage in a developing capital market, Mr. Tetangco said. "FCDUs have more flexibility now in investing decisions. They have greater flexibility in their portfolio mix. They can take advantage of opportunities available in the market," he pointed out. "As a result of that, they can perform better and improve their earnings provided they make the right decision," the BSP chief added. FCDUs are units of local banks or a local branch of a foreign bank authorized by the central bank to engage in foreign exchange-denominated transactions. These include accepting foreign currency deposits and granting foreign currency loans. — Maria Eloisa I. Calderon/BusinessWorld