Bangko Sentral agrees to extend suspension of mark-to-market rule on foreign currency deposit units

MANILA, Philippines - The Bangko Sentral ng Pilipinas (BSP) has agreed to extend the suspension of the mark-to-market rule on the asset cover for foreign currency deposit units (FCDU).

BSP Governor Amando M. Tetangco Jr. said yesterday that the Monetary Board has approved the extension for another six months.

The suspension was originally supposed to be a one-time, temporary suspension of the mark-to-market rule and applicable only when determining the value of asset covers used for FCDU loans.

The BSP had agreed to ease its asset cover requirements for dollar loans until March this year in an attempt to ease the demand for dollars and stabilize the foreign exchange rate.

The suspension was scheduled to expire yesterday but Tetangco said the Monetary Board decided to extend it until September this year to give FCDUs more flexibility in rounding up asset cover for FCDU loans.

The mark-to-market rule requires financial institutions to mark their assets to market, reflecting in their balance sheets the value of the assets they held if they were sold today.

The BSP was careful to pick its words but the move, in effect, suspended the mark-to-market rule, at least on the net unrealized losses of financial assets and liabilities of FCDUs for the purposes of calculating asset cover and only until the end of this month.

“Under our rules, a dollar worth of asset is required to cover every dollar worth of loan,” Tetangco explained.

These items eligible as asset cover include securities such as foreign exchange-denominated debt instruments issued by the Republic of the Philippines, known as dollar ROPs.

When the prices of the assets in the pool were marked to market and their values go down, FCDUs have to make adjustments by buying up more assets to meet the 100-percent asset cover requirements.

Marking to market is also a requirement of the BSP to ensure that banks are property declaring the value of their assets based on current prices.