BSP Eases Rule on Bank Investments

Article excerpt


To encourage banks to diversify their investment portfolios, the Bangko Sentral ng Pilipinas will no longer insist on a prior review process before a bank can sell structured products.

BSP Deputy Governor Amando M. Tetangco Jr. said the new Monetary Board-approved circular effectively "relaxes BSP rules on bank investments in authorized structured products."

The new guidelines for bank investments support the BSPs thrust to encourage banks to diversify their investment portfolios in order to stabilize earnings, control maturity mismatches and minimize over concentration of exposures.

This is the prior review procedure. In short, banks will be allowed to invest in certain structured products without need of prior BSP approval.

The central bank identified these structured products as financial instruments where the return is a function of one or more underlying indices, such as interest rates, equities and exchange rates. There may also be embedded derivatives such as swaps, forwards, options, caps, and floors that reshape the risk-return pattern.

Since selling complicated bank investments are no longer as restricted as before and has in fact been simplified, Tetangco said banks "will be responsible in implementing risk management procedures."

"We will still implement post reviews but the circular is really to encourage banks to diversify their portfolios," the BSP chief said. …