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BSP Grants Relief to Reduce Impact of Mark-to-Market Losses


The Monetary Board approved the grant of prudential accounting relief measures to reduce the impact of mark-to-market (MTM) losses on the financial condition of BSP supervised financial institutions (BSFIs).  The relief aims to strengthen the ability of BSFIs to continue to operate and service the financing requirements of the general public.

The twin measures (a) ease the Expanded Foreign Currency Deposit Unit/Foreign Currency Deposit Unit (E/FCDU) asset cover requirement, and (b) allow the reclassification of debt securities from categories measured at fair value to the amortized cost category, even without a change in the business model for managing these securities.

The relaxation in the E/FCDU guidelines permits a bank to add back its net unrealized losses arising from the change in the fair value of E/FCDU securities in determining compliance with the 100 percent E/FCDU asset cover requirement.  Through the add-back provision, a bank will be able to utilize its foreign currency (FX)-denominated liquid assets for lending and investment instead of holding the same in its books to meet the prudential requirement.  This relief is available to banks until 30 September 2020.

Under the reclassification guidelines, a BSFI is allowed to reclassify certain debt securities that are booked at fair value to the amortized cost category in its prudential reports.  The reclassification of debt securities is subject to the following conditions: (i) It should be done all at the same time; (ii) It may be implemented between 1 March to 30 September 2020; and (iii) A BSFI which avails of the same is required to submit a report on its reclassified debt securities to the BSP.

In addition, a BSFI may avail of a look-back provision wherein reclassifications that are exercised on or before 30 April 2020 may be value-dated as of any day from 1 March to 30 April 2020. In this case, a BSFI will be able to reverse unrealized losses from the change in fair value of its reclassified debt securities in its books.  Reclassifications after 30 April 2020, however, shall take effect only from the date when the reclassification is made.

The measures are part of the BSP’s move to maintain confidence and liquidity in financial markets taking full cognizance of the extraordinary global situation due to the corona virus pandemic.

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