THE banks may go beyond the permissible limit—50 percent with government debt papers—that a portion of their capital may be backed by peso-denominated IOUs of government. There is, however, a condition.

The Bangko Sentral ng Pilipinas (BSP) said Tuesday the banks may extend such limit if they elect to take on the warrants program government announced on Monday.

BSP Governor Amando Tetangco Jr. said the portion of bank capital being backed by the sovereign debt papers of the national government already approximates the permissible 50-percent limit.

He added some banks had disposed some of their foreign currency-denominated government securities holdings and exchanged them for peso bonds in recent months for capital purposes.

This occurred apparently after July this year when the subprime lending woes of US banks first hit the headlines.

But the more compelling reason for the migration is the so-called Basel Two guidelines which rewards banks with zero-risk weight for capital backed by local currency government securities than if these were backed by foreign-currency IOUs.

Risk weights compel banks to put aside a portion of their capital as contingency for certain risks they take as lenders such that their effective capital diminishes in direct proportion to the amount of risk they are saddled with. The bigger the risks, the higher the capital charges under the Basel Two guidelines.

These charges not being applied to that part of bank capital backed by local currency bonds, deputy BSP Governor Nestor Espenilla Jr. said, “The warrant [to be issued by] the Republic is an opportunity for banks to go back to zero-risk weight on those bonds to the extent that they have a paired warrant.”

The warrants program of government is not exactly a free lunch for the banks, who must pay a conversion price when exercising the privilege, a price that can only be determined at the time of conversion.

“The banks basically are buying insurance for lower-risk weights. . . The banks that do not exercise their warrants will get the capital charge as scheduled,” said Expenilla.

The banks that previously invested in the foreign-currency bonds of the Philippine government as part of their qualifying capital, referred to in the market as ROPs, were told to set aside the equivalent of 3.33 percent of their ROP holdings for contingency reasons. These effectively penalize the banks since the risk-weighted assets may no longer be lent to clients.

“Maybe it’s a good investment. It’s basically the decision of the banks and I am sure they have their own system of evaluating the different investment alternatives available to them,” said Tetangco on what government was offering the banks with its warrants program.

Finance Secretary Margarito Teves bared on Monday a program allowing current foreign-currency ROP bondholders to swap what they have for peso-denominated bonds in an auction sale early next year.

MAKATI Mayor and United Opposition (Uno) president Jejomar Binay said Tuesday the National Bureau of Investigation (NBI) should instead investigate Armed Forces chief Gen. Hermogenes Esperon, after the latter admitted receiving advance intelligence reports about the walkout at the Makati court and the takeover of Manila Peninsula by the group led by Sen. Antonio Trillanes IV and Brig. Gen. Danilo Lim.

ZAMBOANGA CITY—Troops from the military’s Western Mindanao Command (Wesmincom) joined in the manhunt for the recapture of fugitive Marine Capt. Nicanor Faeldon, who slipped from a police cordon at the height of the siege of Manila Peninsula Hotel in Makati City, the country’s business capital.

DETAINED Sen. Antonio Trillanes IV may finally get his wish to attend a Senate hearing, thanks to fellow Sen. Miriam Santiago who introduced a resolution asking the ethics committee to “punish” the failed Oakwood mutiny leader for instigating another attempted uprising at the Peninsula Manila Hotel in Makati last Thursday.

THE Commission on Elections (Comelec) still has over two years before the next electoral exercise, but it should now start cleansing the padded voters’ list of at least two million double registrations, according to Sen. Loren Legarda.

CAGAYAN DE ORO CITY—The League of Cities in the Philippines (LCP) has asked the Supreme Court (SC) to look into the legality of the formation of 16 new cities throughout the country.

IT’S a double whammy for lawyer Roel Pulido.

Less than two weeks after the House justice committee laid to rest Pulido’s impeachment complaint against President Arroyo, the House ethics committee junked his other complaint against Speaker Jose de Venecia Jr. in connection with his alleged role in the approval of a franchise of a broadband company owned by his son, Jose III.

THE banks may go beyond the permissible limit—50 percent with government debt papers—that a portion of their capital may be backed by peso-denominated IOUs of government. There is, however, a condition.

The United States will forever be an ally of the Philippines and it would never support any move to change the government through any other means other than what was prescribed in the Constitution, US Ambassador Kristie Kenney said on Tuesday.