The Bangko Sentral ng Pilipinas (BSP) has approved a new circular on banks’ foreign currency deposit system to improve handling of risks by financial institutions, said BSP Governor Benjamin E. Diokno.

Diokno said Friday, Dec. 17, that the Monetary Board gave the go-signal to implement changes to the foreign currency deposit unit (FCDU) regulations.

“In yesterday’s meeting (Dec. 16), the Monetary Board approved the amendments under the second phase of the FCDU regulations. The amendments aim to promote effective risk management in banks by recalibrating the requirements for FCDU transactions in line with the current business norms and risk management practices,” said Diokno during his regular online press chat.

The BSP chief said the regulations will also expand the coverage of entities allowed to engage in FCDU to include Islamic banks and digital banks.

“The BSP will further streamline rules on E/FCDU (expanded FCDU) licensing requirements,” he added.

The proposed amendments will allow Islamic banks, digital banks, as well as universal banks, commercial banks and thrift banks to undertake E/FCDU activity under a Type C license.

“Moreover, the stringent conditions on lending to regular banking unit by E/FCDU will be amended to provide banks with the opportunity to perform efficient and flexible liquidity and cash management practices on their FX (foreign currency) funds. We will issue the circular on this soon,” said Diokno.

Last August, the BSP circulated a draft circular on FCDU that will streamline its rules for banks’ effective risk controls. The big banks or the universal and commercial banks, as well as Islamic banks, will continue to be allowed to operate both the expanded expanded FCDU operations.

Digital banks are allowed to operate FCDU functions and not E/FCDU. It will be treated the same as thrift banks as far as FCDU rules are concerned.

FCDUs are local units of banks that are permitted to engage in foreign currency transactions including foreign currency deposits.

Banks with both E/FCDU and FCDU authority are allowed to engage in foreign currency-foreign currency swap, and in foreign exchange trading. They can also – with prior BSP approval -- engage in financial futures and options trading.

As of end-June this year, FCDU loans totalled $16.2 billion, down 10 percent from $18 billion same time last year.

As of end-June this year, FCDU deposit liabilities also reached $45.6 billion, up by 2.6 percent from end-March of $44.5 billion. On a year-on-year basis, it increased by 4.8 percent from $43.6 billion.

There are 76 banks with FCDU authority, of which 43 are universal and commercial banks. The rest are thrift banks and rural and cooperative banks.