Treatment of Net Unrealized Losses in the EFCDU/FCDU Book for Purposes of Determining Compliance with the EFCDU/FCDU Asset Cover Requirement

OFFICE OF THE GOVERNOR ` MEMORANDUM NO. M-2020-023 To : All Banks Subject : Treatment of Net Unrealized Losses in the EFCDU/FCDU Book for Purposes of Determining Compliance with the EFCDU/FCDU Asset Cover Requirement The Monetary Board, in its Resolution No. 507 dated 7 April 2020, approved the following 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: Whenever the total of the following EFCDU/FCDU accounts, as defined under Appendix 16 of the Manual of Regulations for Foreign Exchange Transactions (MORFXT): 1. 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)’, 2. ‘Net Unrealized Gains/(Losses) on Available For Sale (AFS) Financial Assets’1 recognized directly in equity, and 3. ‘Gains/(Losses) on Fair Value Adjustments of Hedging Instruments’ recognized directly in equity, results in a net “debit balance”, a bank may for the period beginning the effectivity of this Circular until 30 September 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. For guidance and implementation. BENJAMIN E. DIOKNO Governor 8 April 2020 1 The AFS Financial Asset account is mapped against the ‘Financial Assets Measured at Fair Value Through Other Comprehensive Income’ account under the Philippine Financial Reporting Standards 9. A. Mabini St., Malate 1004 Manila, Philippines • (632) 524-7011 • www.bsp.gov.ph • [email protected]