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BSP eases accounting rules for securities investments |
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By LEE C. CHIPONGIAN
Manila Bulletin 12/28/2004 The Monetary Board, policy-making body of the Bangko Sentral ng Pilipinas chaired by BSP Governor Rafael Buenaventura, has approved the revised rules and regulations governing the accounting treatment of investments in debt and equity securities in accordance with the International Accounting Standards 39. BSP Deputy Governor Alberto V. Reyes said banks and financial institutions are required to classify their outstanding investments in debt and equity securities based on their intention for holding or purchasing the securities. As such, Reyes said the approved guidelines will classify, recognize and measure investments in debt and equity as Held-to-Maturity (HTM) Securities, Securities at Fair Value through profit or loss, which will consist of Securities Held for Trading Securities (HFT), Available for-Sale Securities (AFS) that will include as a subaccount underwriting accounts (UA), and Investments in Non-Marketable Equity Securities (INMES). The HTM replaces the Investments in Bonds and Other Debt Instruments (IBODI) account while Trading Account Securities (TAS) is renamed HFT. “In other words banks will clear IBODI by January 31 next year. This means tainted IBODI will be placed as TAS,” Reyes said. Banks will give the BSP the health-to-maturity of their IBODI accounts by end January. The central bank will also require banks and financial firms to classify securities to be held until maturity as an HTM while equity for sale and repurchasing in the short-term profit will be classified as HFT. The BSP explains that a significant provision of the new set of rules is the tainting provision on HTM. The HTM portfolio will be considered tainted when a financial institution sells or reclassifies a significant amount of HTM securities prior to maturity for reasons that are considered permissible under the new regulations. In the meantime, the new set of rules and regulations on debt and equity excludes in its coverage those that are part of hedging relationship, hybrid financial instruments, financial liabilities held for trading and those financial assets and liabilities, which upon initial recognition are designated by the financial institution as at fair value through profit or loss. It also does not include accounting for derivatives and non-derivative financial instruments other than debt and equity securities. For some time now the BSP has been implementing stringent rules with regard to bank holdings of government debt instruments. Monetary authorities suspect that banks have been using their investments in IBODI as a source of liquidity to bet against the peso. IBODI pertain to debt instruments such as government bonds, which a bank is supposed to hold until maturity. Sale of these debt instruments before they mature is allowed provided they are sold close to their maturity date or when the bank has received at least 85 percent of the principal outstanding at acquisition owing to prepayment by the debt issuer, which in the case of Republic of the Philippines (ROP) debt papers is the national government. |
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