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BSP gives big banks more time to build up liquidity.

BSP gives big banks more time to build up liquidity !-- -- Lawrence Agcaoili (The Philippine Star) - March 11, 2019 - 12:00am MANILA, Philippines The Bangko Sentral ng Pilipinas (BSP) is giving big banks more time to build up their liquidity positions and at the same time enhance the computation of the required minimum liquid assets for mid- and small-sized financial institutions. The central bank has moved the effectivity dates of the Basel III liquidity coverage ratio (LCR) and net stable funding ratio (NSFR) compliance of subsidiary banks or quasi-banks of big or universal and commercial banks to Jan.

1, 2020 from the original target of Jan. 1, 2019. The regulator approved the one-year extension of the observation period for up to end-December next year instead of end-December this year.

"This is to give covered banks or quasi banks sufficient time to build up their liquidity position given the combined impact of these liquidity measures," the central bank said. The LCR mandates big banks to hold high-quality and easily convertible assets to cover its total net cash outflows for a 30-day period, while the NSFR requires financial institutions to hold enough liquidity or reliable sources of funding to match their expected funding needs for a longer period of one year.

These minimum leverage standards were imposed by the BSP to ensure universal and commercial banks have enough money supply to meet expected and unexpected cash flows and collateral needs during day-to-day operations. During the extended observation period, the regulator said banks are required to comply with a 70 percent LCR and NSFR floor, with the minimum LCR and NSFR requirements still at 100 percent upon effectivity date.

It said banks that are unable to meet the 100 percent 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 percent floor. Meanwhile, the Monetary Board also approved enhancements to the LCR and minimum liquidity ratio (MLR) guidelines in response to feedback received as a result of the BSP's continuing dialogue with the banking industry.

Under the new policy, cash inflows and outflows from each derivatives contract will now be recognized on a net basis consistent with valuation methodologies for derivatives contracts and the Basel III LCR framework, unlike the previous treatment of reporting expected cash flows for each derivative contract in gross amounts. "This means that derivative contractual payments that the bank will make or deliver to a specific counterparty are netted against derivative contractual payments that the bank will receive from the same counterparty for a derivatives contract," the BSP said.

On the other hand, the method for computing the MLR now converges with the LCR framework as interbank placements are now counted as eligible liquid assets. Moreover, it added the amount of qualifying liabilities has been adjusted through the application of conversion factors to retail current and regular savings deposits worth P500,000 and below and certain liability accounts.

The MLR requires mid- and small-sized lenders including thrift, rural, cooperative, and quasi-banks to keep liquid assets such as cash on hand, other cash items, claims from the BSP, debt securities tagged with a zero risk weight, and deposits in other banks to cover at least 20 percent of its total liabilities at any given time. The Basel committee on banking supervision has adopted the Basel 3 framework prescribing supervisory tools to improve risk management and prevent a repeat of the 2008 global financial c brisis.
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Publication:Philippines Star (Manila, Philippines)
Date:Mar 10, 2019
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