BSP sets reporting guidelines on reclassification of debt securities

THE CENTRAL BANK released guidelines on financial reporting for banks that availed of the relief measures last year on classifying debt securities.

Memorandum M-2021-011 signed by Bangko Sentral ng Pilipinas (BSP) Deputy Governor Chuchi G. Fonacier updated the guidelines for BSP-supervised financial institutions released April last year to allow the reclassification of investments in debt securities to help banks minimize losses during the crisis.

The memorandum gives lenders that used the alternative accounting treatment for debt securities the chance to revert to the Philippine Financial Reporting Standards (PFRS) 9.

“The BSP-supervised financial institution (BSFI) may choose the year wherein it would like to revert to full PFRS 9, however, the BSFI must reflect this in its reports to the BSP as of the start of the reporting period of the said year,” Ms. Fonacier said in a text message.

“Since the BSP’s relief measures are not in line with full PFRS, the adoption of the BSP’s relief measures in the preparation of a BSFI’s Audited Financial Statements (AFS) may warrant a qualified opinion from the external auditor, if deemed to be material,” Ms. Fonacier said.

The Securities and Exchange Commission in November allowed for an industry-specific framework in reporting financial statements for banks and other firms in consideration of relief measures extended during the pandemic.

Ms. Fonacier said less than 10 banks and one quasi-bank availed of the BSP’s regulatory relief measure on the reclassification of debt securities.

In Memorandum No. M-2020-011 issued last year, BSP Governor Benjamin E. Diokno allowed BSFIs to reclassify debt securities measured at fair value to the amortized cost category as the coronavirus crisis persisted.

This will allow banks to exclude losses accumulated from debt securities from their income statement, if any. The memorandum allows the reclassification of such debt securities only if they are not used for trading purposes.

The central bank’s aggressive easing last year also helped reduce banks’ losses from debt securities.

The BSP slashed benchmark rates by 200 basis points last year, bringing down yields on the overnight reverse repurchase, lending, and deposit facilities to record lows of 2%, 2.5%, and 1.5%, respectively.

“Local interest rates and bond yields eased sharply since the COVID-19 lockdowns in 2020, resulting in much higher prices and large trading gains of banks on their holdings of bonds/government securities, thereby leading to higher trading gains that are added to banks’ capital,” Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a text message.

“Thus, in view of the huge trading gains, reclassification may not even be needed and used, but nevertheless provides banks greater safeguards in case the markets become more volatile, as part of the regulatory relief measures,” he added. — Luz Wendy T. Noble

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