BSP adjusts NOP limit of banks

The Bangko Sentral ng Pilipinas has adjusted the net open foreign exchange position (NOP) ceiling for banks in order to increase liquidity in the market, Governor Benjamin Diokno announced on Thursday.

He made the announcement during the central bank’s weekly briefing. By August, the NOP limit shall be raised to the lower of 25 percent of qualifying capital or $150 million, from the previous limit of 20 percent of unimpaired capital or $50 million, whichever is lower, according to Diokno

“A bank’s net open position represents the amount of net assets and/or liabilities denominated in foreign currency that it holds,” he explained.

The last time the limit was changed was in 2007, he noted. Since then, the domestic foreign exchange market has grown significantly, the uptick in the annual volume of transactions mirroring the 50-percent rise in the annual volume of trade transactions.

Over the last 13 years, gross international reserves (GIR) have more than tripled. At the same period, the Philippine banking system’s total assets have surged by threefold, Diokno added.

“The increase in the net open position limit is appropriate since banks can have ample liquidity in the market and the hefty GIR can adequately service client demand for foreign exchange,” he stressed.

Diokno said the adjustment was made possible by the Monetary Board approval of several amendments to the NOP limit framework for banks last May 20.

“These amendments to the framework for the management of banks’ open foreign exchange positions aim to make the calculation and measurement of a bank’s net open foreign exchange position more risk-based,” he pointed out.

The new framework will take effect on August 1 this year.