THE Bankers Association of the Philippines (BAP) launched the dollar-peso cross-currency swap (USDPHP CCS) market to help member banks better manage foreign exchange and interest rate risks, a move welcomed by the business community.
A cross-currency swap is a transaction between two authorized parties that involves an exchange of principal amounts and interest payments in one currency for principal and interest payments in another currency at an agreed-upon exchange rate and at an agreed schedule.
This initiative launched on Monday, June 26, 2023, is in line with BAP’S commitment to promote market development, spearheaded by the BAP Open Market Committee.
The USDPHP CCS market involves a Philippine peso fixed rate and a US dollar floating swap with standard tenors of one year, two years, three years, four years, five years, seven years and 10 years. This will use the US dollar Secured Overnight Financing Rate as the floating rate benchmark for the US dollar leg.
Commodities
Sought for comment, entrepreneur Steven Yu, past president of the Mandaue Chamber of Commerce and Industry, said the cross-currency swap will allow businesses to lock in foreign exchange or interest rates, in effect hedging or locking in costs of commodities or goods over a period.
“In periods of escalating costs or inflationary environment, this serves as a great tool to lengthen price stability and induce order in the commodities market. This is a big help in alleviating poverty and reducing business losses if they have lock-in contracts,” said Yu in an interview Tuesday, June 27, 2023.
“Businesses with lock-in contracts can be assured of consistent profitability which allows businesses to flourish and be job generators,” Yu added.
Moreover, Yu said this also puts the Philippines at par with first-world countries in terms of having available financial options to manage risks and reduce costs.
“This will be beneficial for an import-dependent country like the Philippines in allowing businesses to lock in costs of imported commodities resulting in lower costs of goods and in effect, more price stability,” he said.
The BAP Open Market Committee ensures that the USDPHP CCS market is guided by the rules and regulations of the Bangko Sentral ng Pilipinas, as well as the adoption of the ISDA Master Agreement and Foreign Exchange Global Code. It also has the support of the Money Market Association of the Philippines and ACI Philippines.
Market makers in the dollar-peso cross-currency swap market include BDO, BPI, Metrobank, PNB, Security Bank, Citibank, DB, HSBC, ING Bank, JP Morgan and Standard Chartered Bank. Banks that have signed up as regular participants include China Bank, RCBC, Robinsons Bank, Union Bank, ANZ, Mizuho and MUFG.
Voice-broker participants in this market include Amstel, GFI, Tradition and Tullet Prebon.
The USDPHP CCS market is also supported by Bloomberg, a globally recognized trading platform provider for various financial products. The USDPHP CCS is traded in Bloomberg’s FIQ.