Loosening Up

Recently, several commercial banks have pointed out the severe restrictions imposed by the forex holding limit, impedes the growth of a local derivatives and futures market.

rnrnThe Central Bank has considered these concerns and plans to replace the restriction on holdings with a risk based capital requirement, as a prudence measure to prevent capital been wiped off due to speculative losses.

rnrnldblquote Banks will be able to take speculative positions in the forex market, provided that they have sufficient capital to cover the downside risk
dblquote , a Central Bank official said.

rnrnThe current Capital Adequacy Requirement (CAR) primarily focuses on banks
quote credit risk, while the market risk capital requirement would encapsulate both interest rate risk and forex risk.

rnrnCentral Bank will calculate the capital requirement based on the maximum downside risk arising from the market position.

rnrnHowever, this would require sophisticated risk management systems like Value At Risk systems bee