THE BANGKO SENTRAL ng Pilipinas (BSP) has pushed back full implementation of two liquidity measures, covering subsidiaries of big banks, to next year, giving them time to raise more funds for compliance.
In a statement, the central bank said the Monetary Board extended the observation period for the liquidity coverage ratio (LCR) and the net stable funding ratio (NSFR) for subsidiary banks and quasi-banks (QBs) owned by universal and commercial banks until December, with full coverage now eyed in place by Jan. 1, 2020.
“This is to give covered banks/QBs sufficient time to build up their liquidity position given the combined impact of these liquidity measures,” the BSP said over the weekend.
The LCR mandates big banks to hold high-quality, easily convertible assets to cover potential net cash outflows over a 30-day period, while the NSFR requires covered banks to maintain enough “reliable” sources of funding to match their expected needs for a full year.
BSP Deputy Governor Chuchi G. Fonacier said in November last year that monetary authorities were open to postponing the LCR for subsidiary banks that was otherwise scheduled to kick in on Jan. 1.
For now, the subsidiaries will have to maintain LCR and NSFR equivalent to at least 70% of their one-year cash needs before it rises to a minimum of 100% next year.
These standards are in line with the international Basel 3 framework, which is a set of prudential measures meant to ensure a solid footing for banks.
These guarantee that lenders will not fold even during a funding crunch, based on lessons from the 2008 Global Financial Crisis.
“Covered subsidiary banks/QBs that are unable to meet the 100% LCR and NSFR minimum requirement for two consecutive weeks during the observation period are expected to adopt a liquidity build-up plan even if their said ratios meet the 70% floor,” the central bank added.
To help more banks comply, the regulator also approved the inclusion of new bank assets in computing their available liquidity buffers. Now, the cash inflows and outflows from derivative contracts are recognized on a net basis and included in the LCR.
Computations for the 20% minimum liquidity ratio covering thrift, rural and cooperative lenders may now include interbank placements, allowing them to have more resources as eligible liquid assets.
The BSP also found that big banks have more than enough assets to meet the full LCR requirement, with the ratio estimated at 164.44% as of June.
Listed lenders have been tapping the debt markets since last year to rake in additional funds to meet the higher Basel standards this year. — Melissa Luz T. Lopez