BSP sets liquidity tool for smaller banks

The Basel 3 liquidity standards also include the requirement to put up a net stable funding ratio (NSFR) which the BSP is still reviewing for implementation. The NSFR assess the liquidity requirements of banks for at least a year.

“The NSFR is part of a series of regulations we are now focusing on to strengthen further the liquidity risks management of our banks,” explained Espenilla. “You can look at it as part of macroprudential approach because liquidity risks management make sure that banks are ready to handle situations of liquidity stress and also a good reminder for banks to manage the portfolio mix so as not to concentrate on illiquid assets including real estate.”

Domestic banks have been under Basel 3 rules and standards since it

Bangko Sentral ng Pilipinas (BSP) Governor Nestor A. Espenilla Jr. yesterday said smaller banks will soon contend with its own liquidity coverage ratio (LCR) rules for liquidity risks management.

“We already put out our first set (of LCR rules) and another one coming up which is a variation of this,” said Espenilla on the sidelines of the The Asset’s 12th Philippine Forum in Pasay City.

The next LCR rules – for thrift and rural banks – comprise a group of guidelines. “That’s applicable for smaller banks which among other things, will provide for a minimum liquidity requirements. It’s a layered thing because its pretty complicated if we put it in one giant circular,” said Espenilla.

The big banks are already required to put up an LCR – part of Basel 3 reforms – to complement the minimum capital adequacy implements. The LCR imposes a minimum standard to protect banks against liquidity risks which may happen even if a bank is still solvent. Beginning January 1, 2018, the LCR threshold that banks will be required to meet is 90 percent which will then be increased to 100 percent by 2019. was first adopted in January 1, 2014 by the BSP, one of the first adopters of the reform package in the region.

Aside from the LCR version for the smaller banks, the BSP is also set to release the guidelines for the NSFR.

The LCR standards for big banks, in the meantime, are still under observation period until next year.

Both the NSFR and LCR complement the minimum capital adequacy requirements.

The BSP explained earlier that while the capital adequacy ratio cover solvency issues and risks, the NSFR and LCR will protect banks against liquidity risks which may happen even if a bank is still solvent. The BSP is confident that big banks can readily comply with the new liquidity standards.