Banks back…

settling the difference between the contracted exchange rate and the prevailing rate at time of maturity. BSP has said investors are using NDF in “speculating” that the peso will appreciate further in the future.

Moncupa, who is also president and chief executive officer of Eastwest Banking Corp., agreed the new measure may impact on banks’ foreign exchange earnings or those gained by hedging against pesodollar volatility.

In the long run however, benefits far outweigh the costs, he claimed.

“The conclusion on profits is not really that simple. As we have seen in the late ‘90s, during the Asian financial crisis, unmitigated NDFs resulted in extreme volatility when the inflows suddenly became outflows,” Moncupa explained.

“The resulting chaos and economic dislocations resulted in high interest rates, loan defaults, and a weakening of the industry’s balance sheet and consequently, poor earnings,” he said.

The BAP, after talks with the BSP, “also respects” the decision of the authorities, Moncupa said, as they have a clearer picture of what are the risks present on the ground.

The central bank has been worried about the influx of foreign inflows in the country as they may result into asset bubble formation, and, at this early, has already caused the peso to strengthen by more than six percent against the dollar.

A strong peso, which yesterday opened at 41.16 to a dollar, trims the value of dollar export earnings, remittances from overseas Filipinos, and profits of business process outsourcing entities.

“The BSP is in command of data which no one else has. Their agenda is much bigger than any bank,” Moncupa said.

At the end of the day, Moncupa said the NDF cap is not targeted against the banks. “The premise of course is the cap will minimize speculative flow but not curtail real investments. And we think that is the end objective of the BSP,” he explained.