This accounting alert is issued to circulate the guidelines for the alternative treatment of net unrealized losses arising from marking-to-market of financial assets/liabilities and revaluation of third currencies to US dollar of assets in the Expanded Foreign Currency Deposit Unit/Foreign Currency Deposit Unit (EFCDU/FCDU) book for purposes of determining compliance with the EFCDU/FCDU asset cover requirement, in accordance with Bangko Sentral ng Pilipinas (BSP) Memorandum No. 2020-023.
Introduction
The Monetary Board of the BSP, in its Resolution No. 507 dated April 7, 2020, approved the alternative treatment of net unrealized losses arising from marking-to-market of financial assets/liabilities and revaluation of third currencies to US dollar of assets of EFCDU/FCDU.
Covered EFCDU/FCDU Accounts
Covered EFCDU/FCDU accounts [as defined under Appendix 16 of the Manual of Regulations for Foreign Exchange Transactions (MORFXT)] are as follows:
- Items comprising the ‘Net Unrealized Gains/(Losses) from Operations’ credited/debited to ‘Undivided Profits/(Losses)’, as well as those not yet credited/debited to ‘Undivided Profits/(Losses)’,
- ‘Net Unrealized Gains/(Losses) on Available For Sale Financial Assets’ recognized directly in equity, and,
- ‘Gains/(Losses) on Fair Value Adjustments of Hedging Instruments’ recognized directly in equity.
Alternative Treatment
Whenever the total of the above EFCDU/FCDU accounts results in a net “debit balance”, a bank may, for the period beginning the effectivity of the Memorandum until September 30, 2020, add back the “net debit amount” to total assets in the EFCDU/FCDU book for purposes of determining compliance with the 100 percent asset cover requirement instead of transferring eligible foreign currency assets from the Regular Banking Unit book to EFCDU/FCDU book as required under Appendix 16 of the MORFXT.
This Memorandum shall take effect on April 8, 2020.
See attached BSP Memorandum No. 2020-023 for complete details of this publication.
