By JIMMY CALAPATI

In an unprecedented move the Bangko Sentral ng Pilipinas will allow banks not to book losses stemming from the current world financial crisis until March 31,2009.

The Monetary Board also agreed to "tweak" accounting treatment of asset valuations to help banks cope with the crisis and provide relief for the system.

These will help stabilize peso-dollar swaps and equities trading.

In a related development, the Bankers Association of the Philippines announced that banks have agreed to cut by half the amount of dollars they hold to allow other users like companies and importers access to the dollars.

All the accounting "tweaks", however, according to BSP Governor Amando Tetangco follows international accounting standards.

The new guidelines, Tetangco explained in a press conference, are in recognition of the "extra-ordinary circumstances in the global financial market that created unprecedented market volatility".

Under the new guidelines, asset covers for for foreign currency deposit units (FCDUs) were eased.

Net unrealized losses arising from the marking to market of financial assets/liabilities and revaluation of third currencies under the FCDU book will not be deducted from asset cover for a limited period until March 31, 2009.

"Under our present regulations FCDUs have to maintain 100 asset covers," Tetangco explained.

"From the effectivity of this circular, any net unrealized loss can be added back to the asset cover of the FCDU," Tetangco said.

Simply put, Tetangco said that this only means there would be "no losses until March 31, 2009.

The Monetary Board also allowed reclassification of financial assets under the Held for Trading categories to the Held for Maturity categories.

Banks are required to choose from July 1 to November 14, the reclassification date for the assets under the "held for trading" category.

Banks will also be allowed to reclassify to "held to maturity" credit-linked notes linked to foreign currency denominated issues by the government of the Philippines as an additional one-time regulatory relief.

Moreover, debt instruments previously mandated to be lodged under AFS due to tainting may also be reclassified to HTM.

Meanwhile the BAP said banks have agreed to halve the amount of US dollars they hold in a bid to keep dollars available in the market rather than on banks’ books.

The BAP said it would also encourage banks to lend more actively to each other via an interbank repurchase facility.

The move limits US dollar holdings to $25 million from $50 million and comes after interbank lending worldwide repeatedly froze in the wake of the financial crisis as banks, fearing defaults, hoarded cash.

"We have adopted three resolutions all meant to further increase liquidity — the oil of the economic engine — and keep the economy strong amid current external challenges and position it for the recovery of the global economy," Aurelio Montinola III, BAP president, said.

The industry group said speculation has dominated markets, with panicky trades keeping spreads of Philippine sovereign bonds wide, despite falling oil prices, lower government foreign debt maturities and expected high remittance flows late in the year.

"BAP’s self-restraint moves will give the market crucial time to appreciate the strong foreign exchange fundamentals, and moderate the emotion that expects things to get worse, when fundamentally they should get better," Montinola said.

The measures were the industry’s response to the central bank’s call for a coordinated move domestically to address the impact of the financial turmoil, which has undermined local equities and the peso, down 15.7 percent this year.

Tetangco said the BSP will not consider anymore an earlier proposal to lower banks’ dollar overbought limit, or the ceiling on allowed foreign currency purchases from the market, to $20 million from the current $50 million.

"It is not necessary because they (banks) already have an agreement," Tetangco said.

Some traders said banks voluntarily slashed their dollar overbought positions because if the central bank imposes a cut, it would take time before authorities raise the limit again.

Last year, the central bank raised the dollar overbought limit to the current $50 million for the first time since the 1997/1998 Asian financial crisis.

"The banks responded to the central bank’s moves to distribute liquidity better," said Jose Mario Cuyegkeng, economist at ING Bank in Manila. "The banking association also sees that the reduced level of overbought is adequate enough to service true requirements."

But the moves will not serve as a guarantee against currency volatility, Cuyegkeng said.

"There’s always that risk because the external environment is so volatile," he said. "But by reducing the amounts that the banks keep on a daily basis, then it also provides dollar liquidity to corporations." (With reports from Reuters)