Domestic banks have asked the Bangko Sentral ng Pilipinas (BSP) to allow them to engage in derivatives even without obtaining a license so that they could offer the currency risk protection program (CRPP) to its corporate clients.

To mitigate the further drop of the peso, the BSP has offered corporations

The CRPP, which was reopened by the bsp to oil firms and other big companies sometime in October last year, is a simple form of dirivatives. Under this, the BSP and a firm enter into an agreement to purchase dollars at a pre-agreed exchange rate for a given period.

Industry sources said domestic banks have appealed to the BSP to dispense with licensure requirement for derivatives transactions such as the CRPP because of the volatile peso.

"Without the derivatives license, domestic banks cannot do the CRPP. The expansion only benefits those with license, specifically foreign banks," sources said.

The Monetary Board, the policy-making body of the BSP, had earlier ruled that banks must obtain a license to engage in derivative transactions.

Two kinds of licenses are being issued. The first license allows banks to engage in simple derivatives such as the CRPP or non-deliverable forwards. The other kind of license permits banks to go into more complex type of derivative transactions such as futures and commodities trading.

At present, only a handful of domestic banks have acquired the first license, while most of the foreign banks have already obtained the simple and complex derivative licenses.

According to industry sources, the request of domestic banks to ease-up the licensing requirement is in line with the decision of the monetary authorities to allow banks to enter into long-term cross currency basis swaps with foreign investors.

Under this arrangement, banks can now provide forward facility with foreign investors, depending on the maturity appetite/preference of the latter.

But without a license, domestic banks will be left in the cold, sources said.

It was learned that the BSP was willing to flex its regulatory muscle that a draft is now in the works to amend the BSP circular on derivative license, according to another industry source.

On Thursday, the BSP Monetary Board approved the expansion of coverage and the extension of the maturity of up to five years of the CRPP to further assure the steady supply of dollars, thereby "easing" the pressure on the peso.

As ordered by the BSP, CRPP can now be availed of by net importers, registered foreign currency denominated bonds and FCDU (foreign currency deposit unit) with original maturities longer than one year up to five years; and documents against acceptance/open account and other trade transactions of clients other than oil companies, including manufacturing.

Prior to the extension of the CRPP maturity, the BSP offers of only up to 180-days and only oil firms and other companies with large dollar requirements are eligible to access the facility.

The easing in the CRPP availment, particularly stretching out its maturity, was recommended to the BSP by the Bankers Association of the Philippines during a dialogue with BSP last Monday.

It is believed CRPP is one of the best tool in preventing future fluctuation of the peso in the sport currency market.

Availments to the CRPP will arrest the volatility in the spot currency market since there will be no dollars involved in the payment.