BANGKO Sentral ng Pilipinas Governor Benjamin E. Diokno announced on Thursday that they are increasing the net open foreign exchange (FX) position (NOP) limit for banks to respond to rising dollar demands.
Diokno said in a news briefing that the monetary board raised the banks’ NOP limit to 25 percent of a bank’s qualifying capital or $150 million, whichever is lower. The previous limit is 20 percent of unimpaired capital or $50 million, whichever is lower.
A bank’s NOP represents the amount of its net assets and/or
liabilities denominated in foreign currency.
“This reform initiative aims to ensure that banks can continually provide ample liquidity in the market and service client demand for FX,” Diokno said. The governor also said that the move “recognizes the increased demand for FX arising from the growth in the volume of underlying trade transactions and investments.”
Diokno also said a new calculation methodology for the FX NOP is likewise prescribed, with the open position computed as the higher of the absolute value of the sum of net long or short positions in individual currencies, rather than as the net position across all currencies.
This is consistent with the computation of a bank’s FX position under the risk-based capital adequacy framework. The newly-adopted approach is widely accepted and used by other jurisdictions.
“The increase in the NOP limit is part of a larger set of amendments to the framework for the management of banks’ open FX positions, which aim to make the calculation and measurement of a bank’s NOP more risk-based,” Diokno said.
The amendments will take effect on August 1 this year. Meanwhile, as the revised computation methodology shall necessitate the implementation of a new reporting template, the BSP will conduct a one-month parallel run of the new report with the existing report from 1 to 31 July 2021.
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