In its meeting held on 20 April 2006, the Monetary Board (MB), the policy-making body of the Bangko Sentral ng Pilipinas (BSP), approved a proposal to allow thrift banks authorized to operate foreign currency deposit units (FCDUs) to invest in long-term readily marketable foreign currency denominated debt instruments.
Under existing regulations, universal and commercial banks with expanded FCDU license are allowed to invest in foreign currency denominated debt instruments, regardless of maturity and marketability. On the other hand, thrift banks with FCDU license are only allowed to invest in foreign currency denominated debt instruments that are of short-term maturity and readily marketable. The BSP decided to allow thrift banks to also invest in long-term debt instruments but only for as long as these instruments are readily marketable. For the revised rules, BSP decided to adopt International Accounting Standard 39, which defines readily marketable instruments as instruments that are quoted in an active market and the quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service or regulatory agency, and that the quoted prices represent actual and regularly occurring market transactions on an arm’s length basis.
This expansion in the authorized activities of thrift banks with FCDU license is aimed at providing them with greater flexibility in their investment and liquidity strategies; and a response to the thrift banking sector’s manifestation of confidence in improve the economy, which has been experiencing unprecedented high levels of foreign currency remittance from Overseas Filipino Workers (OFWs). With the new policy, thrift banks can now use long-dated marketable instruments as investment outlet that will allow them to offer more attractive yields to depositors, majority of whom are OFW remittance beneficiaries; and thus remain competitive given the increasing globalization of the financial market.
In approving the proposal, the MB is convinced that, given the current regulatory framework that already provides sufficient regulations on risk management and capital adequacy requirements, thrift banks have the capability to also invest in long-term readily marketable foreign currency denominated debt instruments.