No need to tweak BSP’s hedging facility – Diokno

Published June 8, 2021, 3:31 PM

by Lee C. Chipongian

Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno said there is no need to alter or revise the Currency Risk Protection Program (CRPP) which allow banks to hedge their eligible foreign currency obligations.

“We have not seen the need to further update or expand the hedging facility since the issuance of enhanced guidelines (and in) our view, the current settings remain appropriate particularly given the relative stability of the exchange rate in the past two years,” said Diokno. The peso at the P47-48 level has been consistently on the strong side vis-à-vis the US dollar and remains one of the best performing currency in the region.

The BSP reactivated the CRPP in 2018 and streamlined the mechanics, pricing, and requirements of the facility. The availment process was also rationalized and documentation requirements were simplified.

However, Diokno said there were no availments since 2018. He said this is because the peso “has been on the appreciating trends” since the reactivation of the CRPP in 2018. The last CRPP availment was in 2009.

“(The CRPP) is a continuing facility between the BSP and banks that aims to provide support to bank clients wishing to hedge their foreign currency obligations from foreign exchange (FX) fluctuations,” said Diokno.

He explained that the CRPP, first introduced after the 1997 Asian Financial Crisis, have already undergone several circular amendments in 2018, and these changes were enough and still relevant.

Aside from the streamlining of the documentary and reportorial requirements in the approval processes of the CRPP facility, Diokno said there are also regulatory relief as added incentives for big banks to avail themselves of the facility “which is aimed towards easing the demand pressures in the FX spot market.”

In theory, the central bank never really deactivated the CRPP. It was only inactive because the exchange rate was less volatile and the peso was stable.

Last May 20, the BSP approved an increase to banks’ net open FX positions which will lead to an increase in FX liquidity. Demand for FX has grown in volume with the growth in trade transactions and investments following several rounds of FX policy amendments.

Banks’ net open FX limit is raised to the lower of 25 percent of qualifying capital or $150 million, from the previous limit of 20 percent of unimpaired capital or $50 million. The previous proposal was to increase the limit only to $100 million.