BSP gives banks leeway to comply with new rules on cash sufficiency

THe Bangko Sentral ng Pilipinas (BSP) is giving local banks more leeway to comply with new regulations on cash sufficiency standards.

in a statement over the weekend, the Central Bank said they are extending the observation period for the Basel iii Liquidity Coverage Ratio (LCR) and net Stable Funding Ratio (NSFR) compliance of subsidiary banks/ quasi-banks (QBs) of universal and commercial banks (U/KBs) up to end-December.

This moves the implementation date of the new guidelines to January 2020, a year later from the previous plan of January this year.

The LCR and the NSFR are both the part of the local regulator’s efforts to keep up with international standards under the umbrella of the Basel iii regime.

The NSFR is a measure of the ability of a bank to fund its liquidity needs over one year. it ensures cash sufficiency for a year.

The LCR covers a shorter period of over 30 days in which a bank shall hold sufficient “high-quality liquid assets” that can be easily converted into cash to meet their liquidity requirements.

The BSP said the extension will give the banks “sufficient time to build up their liquidity position” given the combined impact of these liquidity measures.

The BSP said 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 shall now be recognized on a net basis consistent with valuation methodologies for derivatives contracts and the Basel iii LCR framework.

The method for computing the MLR was also revised.

“The 20-percent MLR aims to ensure that stand-alone thrift, rural and cooperative banks and QBs set aside a liquidity buffer that will enable them to withstand liquidity stress events,” the BSP said. “it relates a bank/QB’s eligible liquid assets to its qualifying liabilities.”