CEBU CITY - The Bangko Sentral ng Pilipinas (BSP) is encouraging exporters and companies utilizing foreign exchange-denominated currencies to maximize hedging instruments offered by banks in order to manage financial risks brought about by the effects in the appreciation of the Philippine peso.
"There are financial products such as hedging that companies can utilize in dealing with the volatility in the foreign exchange market," said Annaliza Tan-Cimafranca, BSP Deputy Director of BSP's Capital Markets Specialist Group Supervision and Examination Sector.
Cimafranca made that statement last Friday during the BSP conference, "Gearing Up for External Competitiveness" at the Cebu City Marriott Hotel.
Hedging is a strategy designed to minimize a company's exposure to unwanted risks, while allowing the business to profit from its core operations.
An exporter may not have the expertise, time and resources to manage unacceptable exposures to foreign exchange rate movements. Hedging strategies reduce these unwanted exposures so that an exporter can concentrate on its core business operations rather than on the volatility in the foreign exchange market, explained the BSP said in a statement.
"We understand that the export sector was among those badly hit during the height of the global financial crisis. Hedging is one of the solutions to help cushion them in light of the appreciating peso," said Cimafranca.
However, she noted that hedging measures is not a popular solution among exporters due to the lack of understanding of its nature and operation.
BSP guidelines require banks to ensure that their clients understand the nature of the transaction, that it meets the client's objectives and risk tolerance, and that there is sufficient, accurate and comprehensible information disclosure regarding the products offered.
BSP also said banks offering hedging facilities should also ensure that the derivatives are appropriate for their client's hedging needs, which is determined through a client suitability process. Banks are also required to obtain client information about financial situation, experience and objectives relevant to their desired hedging products.
Hedging products available to exporters include foreign exchange (FX) forwards and FX options. The BSP said all universal and commercial banks are generally authorized to offer FX forwards. FX options and non-deliverable forwards are offered by banks that have obtained additional license from the BSP to engage in these products.
