BSP readies liquidity risk rules
The central bank is preparing the financial sector for its enhanced liquidity risk management rules such as the reporting of intraday liquidity as Bangko Sentral ng Pilipinas (BSP) Governor Nestor A. Espenilla Jr., assures the market that despite global and local risks, the Philippines can sustain its strong macroeconomic fundamentals.
For one, Espenilla remains confident that the inflation outlook continue to be manageable and at 3.2 percent average in 10 months, it is within government expectations.
“Our balance of payments and the exchange rate are firmly under control,” said Espenilla. “Domestic liquidity and credit dynamics are consistent with our expanding economy (and) the current pace of credit growth of 19.6 percent is sustainable as credit exposures remain diversified, with 89 percent of going into the production sectors,” he told bankers in a forum. Asset quality, in the meantime, remains satisfactory he said, as banks “maintained ample buffer of high-quality liquid assets and capital that collectively protect the system against shocks.”
“Against this backdrop of strength, the financial system is also alert and responsive. We are ready to employ our monetary policy toolkit in light of policy normalization of the Federal Reserve which could affect capital flows, domestic interest rates and the foreign exchange rate. We are also watchful of geo-political risks, including protectionist policies in some advanced economies that could pose challenges to the country’s trade, remittances, and foreign direct investments,” according to Espenilla.
The BSP is currently reviewing the guidelines for several enhanced liquidity risk management guidelines such as the intraday liquidity for tighter monitoring of fund flows. The central bank’s liquidity risk management rules will be in four phases with the initial phase covering the guidelines on liquidity risk management, including intraday liquidity.
Espenilla said the intraday liquidity reporting guidelines will complement the qualitative intraday risk management guidelines under Circular No. 981.
The amended liquidity rules will “largely impact complex banks” and quasi-banks, such as on foreign currency management, which require banks to identify and monitor positions in significant currencies. It will impact on intraday liquidity management, which emphasize the need for banks to measure and anticipate the timing of intraday inflows and outflows so that they may contribute to the smooth functioning of payments and settlements systems, explained the BSP.