According to the Bangko Sentral ng Pilipinas, NDFs have been assigned a higher risk weight equivalent to a capital-adequacy ratio of 15 percent instead of CAR of just 10 percent at present.

To ensure an orderly transition to the new capital charge and to allow modifications for calculating the CAR, the higher weights will apply to the net open position of NDFs on the first day of January 2012.

Exchange rates are essentially volatile and the banks’ open short or long positions could just as easily turn speculative profits the banks derive from it at present into hefty losses down the line.

BSP Governor Amando M. Tetangco Jr. said the banks have been noted to engage in increasingly larger volume of forward transactions for months now and he said these were contracted for more than the hedging objective they ostensibly represent.

“BSP data show that NDFs have been rising but outright forward transactions have declined. This reinforces the view that there is more to NDF activity than just the intention to hedge. With market trends still vulnerable to the ongoing macro-financial difficulties in Europe and in the United States, NDF exposures pose heightened market risk from the market’s volatility,” Tetangco said in a statement.

His comments are in recognition of the inherent risks associated with exchange rate between the peso and the US dollar in this case.