BSP to probe dollar deals of banks

Malacañang wants the Bangko Sentral ng Pilipinas (BSP) to conduct a thorough investigation of the foreign exchange transactions of banks suspected of resorting to anomalous deals that caused the peso to depreciate against the dollar, Finance Secretary Jose Pardo said yesterday.

"He (President Estrada) wanted to know who these are and which banks have taken advantage. So I have asked the (BSP) governor (Rafael Buenaventura) to tells us what is it that they (banks) have been doing both here and abroad and even in Hong Kong and Singapore," Pardo said.

Despite this directive, the peso weakened anew against the dollar yesterday losing 18 centavos to reach a weighted average of P42. 829 from the previous day's weighted average of P42.649 to $1. After plunging to P42.90, the peso closed at P42.75, slightly lower than Monday's close of P42.71.

Currency traders said the peso was pulled down by the general weakness of Asian currencies and the strength of the dollar.

President Estrada had expressed alarm upon learning that some local commercial banks have engaged in forward transactions that may have violated existing rules and sold (dollars) to their counterparts in Hong Kong and Singapore. These activities depressed the peso to a nearly 19-month-low of P43.40 to a dollar last week.

"When he (President) heard this (that some banks have speculated at the currency market), the natural reaction of a leader is to see if there is a lapse or some violations," Pardo noted.

Complementing the investigation, he said, would be a study to be conducted by the Monetary Board which would further plug the loopholes in the rules governing foreign exchange transactions.

"We just want them to study what happened and see why they (banks) have always been beating the system," he said. "Historically, we know there were similar situations in the past that have put pressure on the exchange rate."

Currency traders said the President's order would help stabilize the peso further, although they expressed doubts as to whether the market would take the President "seriously."

"Speculation will be minimized and we can expect a more stable currency in the coming months. But I don't think the market will take that seriously because he (President) does not have the credibility since he does not understand these things," a trader said.

While the BSP is ready to sanction banks and even impose penalties on erring banks, he said the purpose of the President's order is not really to "pinpoint" individual banks but just to know what it is that they have been doing that caused wild fluctuations in the foreign exchange. Once known, the BSP could then come up with rules to correct it.

The President's order, given to Pardo the other night, was made after reports that the BSP would no longer penalize banks found to have speculated on the peso because these banks have incurred losses when the local currency recovered against the dollar.