The Market Monitor Minding the Nation's Business
By Riza Lozada
The cross-border liquidity arrangement (CBLA) or the currency swap facility between the Bangko Sentral ng Pilipinas (BSP) and the Bank of Japan (BOJ) has taken effect after the release of its guidelines last August 26, the BSP said.
The BSP said the CBLA will address financial crises and emergency situation which arises “when a bank is under a state of severe shortage of PHP liquidity or under serious financial pressures brought about by unforeseen events or events which though foreseeable, cannot be prevented by the bank concerned.”
“The BOJ and the BSP agreed to establish the CBLA to enhance financial stability in the Philippines, which was announced in February 2015,” BSP said.
The establishment of the facility allows banks operating in the Philippines, including Japanese banks, to access Philippine peso against their Japanese Yen holdings during emergency situations.
This collaboration reinforces the continued commitment of BOJ and BSP to support the long-standing economic and financial relationship between Japan and the Philippines.
As early as February 6, 2015, the BOJ and the BSP agreed to establish a cross-border liquidity arrangement to enhance financial stability.
Under the arrangement, local banks may obtain Philippine pesos (PHP) from the BSP by selling and repurchasing Japanese yen (JPY) with BSP, which widens the range of facilities available to those eligible banks including Japanese banks.
BSP officer-in-charge Diwa Guinigundo signed BSP Circular 919 series of 2O16 implementing guidelines for the CBLA. The BSP circular also listed the eligibility requirements for a bank to avail of the swap facility.
The requirements, among others, include the establishment of the presence of an “emergency situation,” JPY holdings which can be delivered and deposited to the BSP account at the BOJ.
The valuation of JPY shall be determined by the Treasury Department (TD). The TD may make margin calls, as necessary, to cover changes in the value of the JPY against the PHP, according to the BSP Circular on CBLA. In exchange for the PHP liquidity, banks shall deliver the required amount of JPY to the BOJ.
The Bangko Sentral will hold the JPY in its account at BOJ for the term of the swap transaction, the same circular said.
“The amount of PHP that may be availed of by the bank will be determined by the Bangko Sentral taking into account, among others, the amount applied for and the bank’s JPY holdings,” according to the BSP circular on CBLA.