By LEE C. CHIPONGIAN
The Bangko Sentral ng Pilipinas is studying big banks’ proposal to base their dollar purchases based on capital adequacy ratio (CAR).
"We will discuss (and decide) that this week or next week.," BSP Governor Amando M. Tetangco Jr. told reporters.
BSP Deputy Governor Nestor A. Espenilla Jr. said the Bankers Association of the Philippines is proposing to change the policy on banks’ allowable dollar purchases or overbought limit. That instead of using the existing limit based on 2.5 percent of a bank’s unimpaired capital or million (whichever is lower), the limit should be based on CAR, a sort of reward for maintaining a good balance sheet.
CAR is a measure of a bank’s capital and solvency, and relates capital to risk assets weighted. The BSP requirement is to maintain at least 10 percent minimum risk-based CAR to protect depositors and promote the stability and efficiency the financial system.
According to Espenilla, "right now our system is already capital-based, but the way we set it up … we put a limit in absolute amount (2.5 percent of unimpaired capital or million)."
He said banks, especially very big banks, want this limit adjusted even higher than million, which is what the BSP is looking at right now. "The big banks think (the current limit) is unfair for them because hit this ceiling all the time."
Last year the central bank said it could relax its foreign exchange regulations given the big volume of foreign currency trading. Some banks handling huge transactions have requested the BSP to increase their overbought positions to meet client requirements.
"(I understand) where the banks are coming from — CAR reflects the relative size of the banks. It’s also consistent with concept of risk-based. The more the risk, the more capital needed. At the moment we’re still studying their proposal," Espenilla said.
Another option the BSP is considering is doubling the limit on banks’ overbought dollar positions to million from million, also capping banks’ oversold positions to million.
Since 1997, the BSP applied a limit on banks’ dollar position as an effective tool at controlling speculative attacks on the exchange rate.
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