The Bangko Sentral ng Pilipinas (BSP) is reviewing smaller banks' foreign exchange (FX) forwards and swaps as hedging instruments against FX risks, for managing capital, or as funding resource.

A source said the proposed revisions will affect thrift, rural and cooperative banks' swap positions mostly, as stated in the BSP's Manual of Regulations on Foreign Exchange Transactions.

Based on the proposed amendments, BSP wants to "exclude" thrift and rural banks with Type 3 derivatives authority as allowed "customers" which, through FX forwards, "hedge their market risks arising from FX obligations or exposures."

Type 3 derivatives authority are "limited users" in specific types of derivatives. FX risks include any payment in FX and other risks from BSP-registered foreign investments not covered with "specific repatriation dates."

At the moment, these customers, as referred to, are resident banks other than universal/commercial banks and non-bank BSP-supervised entities not authorized to engage in FX forwards and swaps as dealers.