PH banks can meet liquidity rules under Basel 3 – Fitch

Fitch Ratings said Philippine banks’ ample liquidity and strong deposits’ base make these banks “well-positioned” to meet the liquidity standards of Basel 3 rules.

The Bangko Sentral ng Pilipinas ( BSP) has recently approved a requirement for big banks to set aside a Liquidity Coverage Ratio (LCR) which imposes a minimum standard and on a short timeframe “to protect banks against liquidity risks which may happen even if a bank is still solvent.”

Fitch Ratings said the healthy domestic system liquidity and a banking sector whose balance sheets are being “mostly funded” by deposits are “positive structural factors that will help banks comply with upcoming LCR requirements.”

This will also encourage banks with “large pools of corporate deposits” to do more retail deposits (current and savings accounts) and long-term debt issues. Banks with strong retail deposit franchises has an advantage in meeting the LCR hurdle, as such balances are usually more stable in times of stress, said Fitch.

“Those that rely more on corporate deposits, however, could be subject to higher run- off assumptions under the LCR calculations, which would result in lower ratios on a likefor-like basis.”

The credit rating agency also said that based on its internal estimates for its rated banks, the top 10 here are capable of meeting LCR rules. “That said, loan growth has exceeded deposit and M3 liquidity growth over the last five years, and system liquidity would tighten gradually if this dynamic were to continue.

Against this backdrop, the LCR regime will enforce an added layer of balance-sheet discipline on the Philippine universal and commercial banks, in addition to existing conservative regulatory hurdles on capital.”

The BSP ruled that big banks should meet an LCR of 90 percent by early 2018 and 100 percent by 2019. “Besides meeting the overall requirement, banks will likely need to monitor their