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Guidelines on Banks' Participation in the Domestic Debt Exchange Offer of the Republic of the Philippines

01.27.2006

The Monetary Board approved on 26 January 2006 the guidelines on the treatment of securities received in the Domestic Debt Exchange Offer of the Republic of the Philippines for prudential reporting purposes.

Under the said guidelines, securities booked under the HTM category that are offered in the exchange shall be exempted from the tainting provision provided under Circular No. 476 dated 16 February 2005 for prudential reporting purposes, provided the securities received in the exchange or those rejected shall continue to be booked under the HTM category.

The tainting provision under Circular No. 476 prohibits financial institutions from using the HTM category and requires reclassification of the entire HTM portfolio to the Available for Sale (AFS) category during the reporting year and for the succeeding two full financial years whether a financial institution sells or reclassifies more than an insignificant amount of HTM investments before maturity other than for reasons specified under the said Circular.

The BSP shall likewise continue to recognize as eligible reserves for liquidity floor and trust duties the securities received in exchange for securities that were previously considered as such.

The Domestic Debt Exchange Offer is a domestic debt consolidation program of the Bureau of the Treasury that is aimed at strengthening the government securities' market and reducing the country's dependence on foreign borrowings.  The BSP expressed its support on the said project in view that the said program is deemed to complement BSP's thrust of capital market development.