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Philippines eases asset cover rules on forex

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November 1, 2008

Philippines eases asset cover rules on forex
The Philippine central bank said on Friday it would relax asset cover rules on banks' foreign currency deposit units to ease pressure on dollar liquidity as it struggles to limit the local fallout from the global financial crisis, reported Reuters.

It also said it has extended by two weeks to Nov. 14 the deadline for banks to reclassify their debt and equity holdings to reflect values prior to the global credit crisis.

The central bank will continue to ensure adequate liquidity in the financial system and take policy action to promote stability in the financial sector amid financial market disruptions globally, governor Amando Tetangco told reporters.

He said the growth outlook for the Philippines this year was "one of guarded optimism," but consumer spending -- underpinned by a steady stream of remittances and slowing inflation -- would provide the cushion to the economy.

The central bank said it would allow banks not to deduct from their asset cover the amount of net unrealised losses from the mark-to-market value of their financial assets and liabilities under their foreign currency deposit units (FCDUs) until March 31.

At present, banks are pressured to buy more dollars to ensure 100 percent asset cover of their FCDUs assets and liabilities.

"This is another measure taken by the Monetary Board in recognition of the extra-ordinary circumstances in the global financial market that has created unprecedented market volatility," the central bank statement said.

Banks' FCDU deposit liabilities were at $19.384 billion at the end of June, nearly flat from $19.324 billion the previous month, according to central bank data.

The central bank last week approved guidelines allowing financial institutions to stop using fair-value or mark-to-market accounting of their debt and equity holdings and shift to the use of historical valuation of assets.

Steep declines in the value of some assets in the wake of the U.S. subprime mortgage market meltdown have forced many banks in the West to post massive losses, sending their share prices plunging and fueling the worst financial crisis in 80 years.

A growing number of banks have had to sell new shares or holdings in the company to raise money to ensure they have adequate levels of capital.

The central bank said last week that lenders will be allowed until October 31 to make the one-time shift to historical valuation of assets, using July 1 mark-to-market values.

On Friday, the central bank said banks have until November 14 to make the shift. Banks can also choose fair values between July 1 and November 14 as basis in reclassifying their holdings, although the shift would mean the assets have to be held until maturity.

Credit linked notes, a structured product linked to Philippine sovereign debt issues, are also eligible for reclassification, the central bank said.

The shift was made to align local accounting standards with the easing of fair-value rules in the United States and Europe.

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