Banks seen complying with long-term liquidity req’ts

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) expects banks to comply with the liquidity requirements over a longer period of one year as part of efforts to further strengthen the liquidity and capital positions of banks.

BSP Deputy Governor Chuchi Fonacier said authorities are set to issue a circular for the net stable funding ratio (NSFR) within the year to complement the liquidity coverage ratio (LCR) framework which was introduced last year.

“Before the year ends, we will be coming out with the circular on NSFR,” she said.

Fonacier said the NSFR is a minimum acceptable level of funding over a one-year time frame based on the liquidity characteristics of the banks’ assets and activities.

The LCR requires universal and commercial banks as well as foreign bank branches to hold sufficient high quality liquid assets (HQLAs) that can be easily converted into cash to service liquidity requirements over a 30-day stress period.

This would provide banks with a minimum liquidity buffer to be able to take corrective action to address a liquidity stress event. By January, banks are required to meet the 100 percent LCR threshold.

According to Fonacier, the NSFR looks at the liquidity requirements of banks over a longer period of one year.

Fonacier said the implementation of the NSFR would also be patterned after the LCR through a phased in period wherein banks would be given one year for pilot testing before full adoption by January 2019.

Philippine banks are prepared to comply with the liquidity requirements over a one-year period, Fonacier said.

“We do an initial determination whether banks will be able to comply and they can comply based on initial review of the banks’ liquidity profile for this,” she said.

Both LCR and NSFR are part of the Basel 3 reform package issued by the Basel Committee on Banking Supervision (BCBS).

Fonacier said the central bank is issuing a four-phased regulation to reinforce the capability of banks in managing liquidity risk.

She said the Monetary Board has approved the guidelines on liquidity risk management wherein intraday liquidity would be enhanced.

Fonacier said the second phase covers the amendments to the LCR standard and the adoption of a complementary Minimum Liquidity Ratio  – a simplified version of the LCR requirement – applicable to thrift and rural banks.

The third phase is the NSFR to be adopted next year while the fourth phase is the guidelines on the intraday liquidity reporting, Fonacier said.