The Bangko Sentral ng Pilipinas (BSP) posted unrealized gains of P784 billion as of the first eight months of 2023, up by 5.7 percent from same period last year of P741.99 billion.
For the whole of 2022, based on the central bank’s financial statement, it registered P689.25 billion unrealized gains, more than 2021’s P617.32 billion and 2020’s P478.42 billion.
Under the BSP law, unrealized gains are called revaluation of foreign currency accounts. It used to be called revaluation of international reserves.
The International Monetary Fund (IMF) defined realized gains and losses as “profits or losses arising from completed transactions.” On the other hand, unrealized revaluation gains and losses are profits or losses “that have occurred more commonly known as ‘on paper’ but the relevant closing out transactions have not been completed.”
The IMF said the International Financial Reporting Standards (IFRS) has guidance on how to treat revaluation gains and losses but then the “distinction between realized and unrealized gains or losses from foreign currency exchange rate revaluations and monetary gold price revaluations are two common exceptions not specifically addressed under IFRS.”
BSP officials have explained previously that unrealized gains continued to increase because the BSP is engaging in US dollar selling. Last year, the BSP unleashed about $15 billion in defense of the depreciating peso at the time, which hit a record low of P59 vis-à-vis the US dollar.
The revaluation of the country’s international reserves is literally the unrealized gains from the fact that the peso has depreciated, according to former BSP Governor Felipe M. Medalla. He added that the BSP borrows in pesos to buy foreign assets.
In October and November, the peso has ranged from P55 to P56 but with BSP in the spot market, it never breached P57 versus the greenback, except intra-day. In September alone, according to the latest data, the BSP released $1.5 billion of foreign exchange swaps, a tool it uses to intervene in the exchange rate market.
As of end-August, the BSP recorded a net income of P22.91 billion, 71 percent lower compared to same period last year of P78.82 billion.
It posted net foreign exchange gains of P43.67 billion, down 2.75 percent from same time last year of P42.5 billion. These are realized gains from foreign exchange rate fluctuations.
Also as of end-August, central bank total assets reached P7.428 trillion, up 0.3 percent from P7.404 trillion in 2022.
Total liabilities also increased slightly by 0.2 percent to P7.291 trillion from P7.276 trillion.
In the same period, BSP’s net worth rose to P137.46 billion from P128.10 billion or up by 7.3 percent, while surplus or reserves totaled P77.46 billion, down by 0.82 percent from P78.10 billion same time in 2022.
Under the amended BSP Charter, the central bank is supposed to have a P200-billion capitalization which it can raise by not remitting dividends to the National Government (NG). But due to the pandemic, the BSP continued to remit to the NG in 2020 and 2021 to help in the anti-pandemic response.
For its 2022 dividend payments, this was siphoned off by the Maharlika Investment Fund (MIF). The BSP will remit as MIF seeder-funder about P62 billion in the next two years to the NG to finance the requirements of the Maharlika Investment Corp. This will come from its net income.
The BSP already deposited P31 billion to the NG account to be used as MIC capital.
Based on the MIF law, which created the MIC, the BSP is mandated to remit 100 percent of its dividends to the government as seed cash.
After the first two years of 100 percent dividend payout to the NG, in the succeeding years, the BSP will remit 50 percent of its declared dividends to the MIC while the remaining 50 percent will go to the government until the increase in the BSP capitalization has been fully paid.
For decades since the BSP was established in 1993 from the ashes of the bankrupted Central Bank of the Philippines, the BSP only had P10 billion in capitalization, short of the P50 billion promised under the BSP law. The entire P50 billion was given to the BSP in full 20 years later, in 2013.
In 2019, the revised BSP Charter raised its capitalization from P50 billion to P200 billion. The plan was to buildup BSP’s capitalization by not remitting dividends to the NG and keeping the money to fund its operations as the country's central monetary authority. However this did not happen because of the pandemic and now the MIF.
At the moment, the BSP only has a P60-billion capitalization.
BSP officials said since they have a substantial unrealized gains that was more than P200 billion, their financial standing is still comfortable while fulfilling its mandate of maintaining both price and financial stability at all times.