New bank liquidity rules credit positive – Moody’s

MANILA, Philippines - The new liquidity requirement imposed by the Bangko Sentral ng Pilipinas (BSP) on big banks is credit positive for the Philippine banking industry, Moody’s Investors Service said in a report.

Moody’s said the decision of the BSP to adopt the liquidity coverage ratio (LCR) framework would strengthen the country’s banking sector.

“The proposed LCR rules are credit positive for the Philippine banks because they will strengthen their liquid asset buffers and reduce their liquidity risks,” Moody’s said.

The debt watcher said the new rules would increase safeguards in the bank’s asset liability management, particularly prudent in light of the strong 16 percent average credit growth between 2011 and 2015.

“The LCR requirements will ensure that banks maintain sufficient liquidity buffers and focus their funding on stable sources such as customer deposits, as opposed to market-sensitive wholesale funding,” it added.

Moody’s is convinced universal and commercial banks could meet the LCR requirement.

“We believe most of the rated Philippine banks are well positioned to comply with the minimum LCR requirements because they all have strong core customer deposits and ample buffers of qualifying liquid assets,” it said.

Moody’s noted the big banks benefit from having a particularly large share of retail savings deposits, which have lower outflow assumptions in the 30-day stress scenario than corporate deposits.

According to the debt watcher, big banks hold high quality liquid assets (HQLA) consisting mostly cash and Philippine government securities amounting to over 38 percent of their total liabilities on average.

“These features provide sizable buffers against the assumed cash outflows in these banks’ LCR calculation,” Moody’s said.

It added Philippine banks are already required to maintain a reserve requirement of 20 percent of their deposit liabilities.