BSP asked to suspend mark to market directive

MANILA, Philippines - Philippine banking authorities should consider suspending the mark to market rule, a regulation that forces lenders to declare the current value of their investments – which are lower due to the crisis – instead of their future worth. This was publicly proposed by Omar Byron T. Mier, president of the Philippine National Bank, the country’s fifth largest lender as of September 30, 2008. Complying with the said regulation is expected to incur a deep impact on lenders’ balance sheets, Mier said during a credit forum held Monday at the BSP office in Manila. The said accounting rule is also seen to reduce banks’ ability to lend to businesses, thereby delaying the Philippines’ economic growth. However, local monetary authorities will only consider the proposal if the “same decision is made by central banks all over the world," BSP deputy governor Diwa C. Guinigundo said. “If [the suspension of this rule] is done on a global scale then there is scope for considering local application," Guinigundo said. The World Bank (WB) and the International Monetary Fund (IMF) are currently studying the prudence of suspending the mark to market rules, he added. The results will be released some time in April, Guinigundo said. In October, the BSP agreed to ease its mark to market rule, allowing banks with a one-time chance to reclassify their assets. But a month later, the BSP ruled out the regulation’s suspension, asserting that having the rule in place will prompt banks to become more cautious in making investments. Under such rules, banks and insurance companies are obliged to report its exposure to fixed income securities, or investments that represent consumer loans and mortgages. Values of these investments may be lower – owing to the global slowdown – even as these may still provide cash flows to investors. Next: Banks seek various forms of regulatory relief Banks seek various forms of regulatory relief During the same forum, Mier also sought various forms of regulatory relief, including the elimination of 2 percent provision on bad loans. The directive could already be scrapped since it was implemented after the 1997 Asian crisis, when the banking industry was beleaguered by substantial bad loans. Thanks to the BSP’s strict regulations, conditions have improved as the industry average of non-performing loans is currently below five percent, the lowest since pre-1997 levels. The loan loss provision requires banks to allot two percent of its funds for bad loans, thereby further restricting its ability to lend. Earlier, the PNB, now controlled by liquor and tobacco tycoon Lucio Tan, requested banking authorities to defer a rule that also requires lenders to demand audited financial statements from borrowers until 2012. “We want to be allowed to continue accepting financial statements not concurred by accredited auditors," Mier said, explaining that only a handful of accredited auditors could be used in areas outside Manila. “The reality is that, for example, there are only two accredited auditors in Bicol," Mier continued, adding that there were even fewer accredited auditors in the Visayas and in Mindanao compared to the number of prospective borrowers. - GMANews.TV