CEBU, Philippines - The Bangko Sentral ng Pilipinas (BSP) is encouraging exporters in Cebu to avail of the hedging facilities offered by banks to cushion the adverse effects of the unstable foreign exchange market on their businesses.
Annaliza Tan-Cimafranca, Deputy Director of BSP’s Capital Markets Specialist Group Supervision and Examination Sector, said that supporting the development of hedging products in the country is one of the government’s ways to help exporters cope with more challenging global economic developments, specifically the volatile value of the peso against the dollar.
She assured participants to the second-leg of the “Gearing Up for External Competitiveness” held at the Cebu City Marriott Hotel last Friday that the BSP has issued revised regulation, circular no. 594, which revised the regulations of activities of universal and commercial banks concerning derivatives or hedging products.
The revised guidelines seek to protect the investing public by providing sales and marketing guidelines, including client suitability procedures and risk disclosure requirements for banks offering derivatives products to clients; among others.
A derivative is a financial instrument that derives its value from the performance of an underlying variable such as interest rates, foreign exchange rates, or financial instrument prices.
A company may enter into a derivatives transaction for several economic purposes, including hedging, which is similar to an insurance coverage that people acquire to protect themselves from incurring possible losses due to unfavorable event taking place in the future.
Hedging strategies are designed to reduce the volatility of earnings or to stabilize the value of a particular asset and liability. It allows a company, especially those engaged in foreign exchange transactions, to project their costs and income, and not be at the mercy of the fluctuating foreign exchange market.
Jenifer Cruz, past president of the Cebu Gifts, Toys, and Housewares Manufacturers and Exporters Association, earlier told The Freeman that most of the small and medium exporters in Cebu do not avail themselves of the hedging products offered by banks, as these entail additional costs to business.
Professor Dante Canlas, Professor at the School of Economics of the University of the Philippines, advised BSP officials during the seminar that they should also monitor the rates of the hedging products in the market and make sure that they are competitive.
Ma. Cyd Tuano-Amador, BSP’s Assistant Governor for Monetary Policy Sub-sector, said promoting competitive rates of hedging products is one of the reasons why the BSP is conducting a nationwide information dissemination campaign to educate those concerned of the benefits of hedging to their businesses.
“The market is hesitant to try the products because of the lack of information on the products. That is why the rate is still (quite high because there are few takers.) But as more companies demand and use the product, the rate (will go down,)” she said.
Amador also said that hedging products are not sold to just any individual or company.
“The banks are mandated to require their clients to submit documents that support that there is indeed a need to protect their business,” she said.