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July 19, 2024

Banks FX position manageable despite peso movement

Philippine banks’ foreign exchange (FX) position was manageable at the end of 2023, according to the Bangko Sentral ng Pilipinas (BSP).

Banks’ net FX assets exceeded liabilities, totaling $580.8 million. This is lower than the net open FX position ratio in 2022.

An overbought FX position means a bank has more foreign currency assets than liabilities. This can lead to rising prices without a big decrease. An oversold position means the opposite, where liabilities are higher than assets, and prices fall. The net open FX position reflects a bank’s foreign currency denominated net assets or liabilities.

The ratio of net open FX position to capital for major banks was 1.3%, down from 2% at the end of 2022.

“This shows that banks are actively managing their FX exposures,” the BSP said.

The net FX position to unimpaired capital ratio is a key measure of how vulnerable banks are to changes in FX rates and their ability to handle potential FX-related losses.

Banks’ net open FX positions, regardless of being overbought or oversold, cannot be more than 25% of qualifying capital or $150 million, whichever is lower.

The Philippine peso averaged P56.06 against the US dollar in the fourth quarter of 2023, a 0.19% decline from the previous quarter. However, the peso gained 0.70% year-on-year, closing at P55.37 on December 29, 2023, from P55.76 at the end of 2022, based on BSP data.