Banks advised to have enough cash for timely settlement

Lawrence Agcaoili (The Philippine Star) - December 9, 2019 - 12:00am

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) said banks should have enough cash to meet payment and settlement obligations in a timely manner under both normal and stressed conditions.

BSP Governor Benjamin Diokno said the guidelines on intraday liquidity risk management would help Philippine banks with large volume of daily payments and settlements to effectively manage their positions and risks.

Under Monetary Board Resolution 1818 issued last Nov. 21, all universal and commercial banks as well as their subsidiary thrift and quasi-banks are required to submit the report on intraday liquidity on solo basis.

Diokno stated in Circular 1064 the reporting requirements would also facilitate sound management of intraday liquidity risks and to provide sufficient understanding and allocation of resources.

He said BSP-supervised financial institutions should have policies, procedures, and systems to support operational objectives in all of the financial markets and currencies in which they have significant payment and settlement activities.

These would help banks measure expected daily gross liquidity inflows and outflows, identify, measure and monitor payments in large value payment systems such as check clearing, PESONet, InstaPay, ATM network and at the same time properly document accounts that are opened and maintained with correspondent banks to facilitate payment services pertaining to fund transfer, check clearing, cash management services, trade finance, foreign exchange trades, security trades, security custody services, and other short-term payment transactions.

The guidelines would also help banks monitor and keep track payments made on behalf of correspondent banking customers as well as manage risks related to the provision of intraday credit line facilities.

“A bank should maintain appropriate documentation on these intraday credit facilities as well as monitor the extent of drawdown and peak usage of the intraday credit lines so as to ensure adherence to established credit limits and to facilitate liquidity risk management. As intraday credit lines are normally drawn down and repaid within the same day, banks should keep track of their customers’ drawings and repayments on such credit lines on an intraday basis to ensure compliance with approved credit limits and funds flow management,” Diokno said.

He said banks should also monitor intraday liquidity positions in large value payment systems and correspondent banks against expected activities and available resources; secure sufficient funding and manage the timing of liquidity outflows; manage and mobilize collaterals as necessary to obtain intraday funds; attribute intraday liquidity costs to the bank’s/QB’s income generating units, as warranted; set intraday liquidity risk limits that take into account possible obstacles to intraday cash flow movement; and deal with unexpected disruptions to intraday liquidity flows.

“The tools and resources applied by a bank and quasi banks in managing its intraday liquidity risks should be tailored to its business model,” he said.

Likewise, stand-alone thrift banks as well as all rural and cooperative banks are expected to maintain an adequate and reliable management information system that is able to monitor and report gross payments sent and received in the large value payment system on a daily basis and available intraday liquidity at the start of the banking day.

Latest data showed liquidity in the financial system expanded at a faster rate of 8.5 percent to P12.1 trillion as of end-October after a series of reduction in the level of deposits banks are required to keep with the BSP.

The central bank has slashed the reserve requirement ratio for big and mid-sized banks by 400 basis points and for small banks by 200 basis points this year to free up more funds to boost economic growth.

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