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On Wednesday, BSP Governor Amando Tetangco Jr. said the central bank has been looking at imposing a cap on the non-deliverable forwards (NDFs) held by banks as a means to curb currency speculation, which was believed to be one of the reasons behind the significant appreciation of the peso since the start of 2012.

NDFs are hedging instruments intended to keep exporters and importers from losses resulting from exchange-rate fluctuations. However, the BSP believes NDFs also are being used by investors and banks to earn from currency speculation.

The nearly 7-percent appreciation of the peso since the start of the year has made it one of the strongest Asian currencies but has elicited complaints from the export sector. Exporters said the strengthening of the peso has made Philippine-made goods more expensive in dollar terms and, therefore, less competitive.

The BSP said it has allowed the exchange rates of the peso to be generally flexible, but stressed that appreciation or depreciation of the currency due to speculation should be curbed.

It said speculation could cause excessive volatility of the exchange rate that could harm businesses and the economy.

Data from the Bangko Sentral ng Pilipinas showed that big banks registered a combined net income of P80.11 billion as of end-September, up by 15 percent from the P69.63 billion recorded in the same period last year.

Data showed that interest income, mainly earnings from interest on loans extended to clients, amounted to P216.02 billion, up by 0.4 percent from P215.15 billion.

Non-interest income—which includes earnings from services like bills payment, remittance facilitation, custodianship and underwriting—reached P96.88 billion, up by 16 percent from P83.57 billion.

The banking sector usually moves with the economy, as the demand for financial services, such as loans to fund investments, rises when there is economic growth.

In the first three quarters, the Philippine economy grew by 6.5 percent, and expectations are that full-year growth will exceed the official target of 5 to 6 percent.

In the third quarter alone, the economy grew by a surprising 7.1 percent, the fastest in Southeast Asia.

The growth was credited to higher government spending and robust household consumption, which is partly aided by remittances from overseas-based Filipinos.

According to the BSP, the country’s banking sector is sound and stable, and will be able to continue providing the funding support for the economy.

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Heffernan Capital Management
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