BSP amends rules on foreign bank funds in TDFs

The Bangko Sentral ng Pilipinas (BSP) will not bar foreign bank funds in both the term deposit facility (TDF) and overnight deposit facility (ODF) if these are inward remittances or foreign currencies purchased locally.

In a new circular signed by BSP Governor Nestor A. Espenilla Jr. last February 5, the BSP amended the rules prohibiting funds from non-residents in the TDF and the ODF. Non-residents’ funds are still prohibited, but inward remittances by a foreign bank which it will use as capital for its local branch or unit will be accepted in deposit facilities.

“In the case of funds inwardly remitted by a foreign bank intended as capital of its branch or subsidiary in the Philippines, the same funds shall be eligible to be accepted in the TDF and the ODF of the BSP,” according to BSP Circular No. 995. “Further, placements in the TDF and the ODF are contractual in nature and thus shall be governed by the intent of the contracting parties.”

The central bank reiterated that the TDF and ODF are monetary instruments designed to manage liquidity in the financial system and should not be used for “opportunistic investment activities funded from non-resident sources.”

“In keeping with the nature of this facility, all eligible banks shall not place in the TDF and in the ODF funds obtained, directly or indirectly, from nonresidents; provided, that funds inwardly remitted by a foreign bank intended as capital of its branch or subsidiary in the Philippines shall be eligible for placement in the TDF and the ODF.”

The BSP said an eligible bank will submit a notarized Letter of Undertaking (LOU). If a bank is found noncompliant to BSP rules, said bank will be limited, suspended, or denied access to the deposit facilities.

Last year, the BSP terminated trust entities’ ODF and TDF placements to discourage its use as an investment instrument.

The central bank shifted to the interest rate corridor (IRC) on June 3, 2016 – which created the ODF and TDF – to help “enhance the link between the stance of BSP monetary policy and financial markets and, thereby, impact the real economy.”

With the IRC system the BSP reformed its open market facilities by the introduction of the standing liquidity facilities, namely, the overnight lending facility and the ODF, the overnight RRP facility, and the TDF.