The BSP announced yesterday that the Monetary Board decided it would give a 30-day exemption to banks wishing to reclassify foreign currency denominated bonds of the NG and the BSP booked under the "held to maturity (HTM)" category.
According to the BSP, its existing reclassification guidelines would take effect on July 1 when banks wishing to reclassify HTM securities would follow the new risk-weighting guidelines of the BSP.
Under these rules, however, forex-denominated NG and BSP bonds reclassified due to the increase in risk weights would not be considered a violation of the so-called "tainting" rule.
However, the BSP said the exemption would only apply to reclassification of HTM securities outstanding as of the effectivity date of the circular and if the reclassification was made within 30 days.
According to the BSP, it is allowing banks to reclassify the said securities out of the HTM category instead of simply allowing banks to sell within a specified period because the MB wanted to give banks more flexibility in managing their investment portfolio.
The BSP explained that the covered securities that previously enjoyed zero percent risk weight would then be risk-weighted according to the NG’s external credit rating, applied on a staggered basis.
The tainting provision, the BSP explained, prohibited financial institutions from using the HTM category during the reporting year and for the succeeding two full financial years whenever it sells or reclassifies more than an "insignificant amount" of HTM investments before maturity.
"Once violated, the entire HTM portfolio is required to be reclassified to the available for sale category," the BSP said.
Then, the portfolio would be valued at its fair value with any revaluation gains or losses reflected in the equity section of the institution’s balance sheet.