BSP scraps rules on liquid assets
The Bangko Sentral ng Pilipinas (BSP) has lifted its liquidity-related rules previously imposed on local banks since the new Basel 3 liquidity standards will already cover these requirements.
Since the BSP will be adopting the Basel 3 liquidity coverage ratio (LCR) next year, banks are no longer required to put up liquid assets against a bank’s holdings of government deposits and the liquid asset cover. The BSP also removed the currency cover requirement for the foreign currency deposit unit (FCDU).
“The Monetary Board further liberalized other liquidity metrics applicable to universal and commercial banks in view of the adoption of the LCR beginning January 1, 2018,” the BSP announced over the weekend.
“The performance of (big banks) with respect to the LCR has been under a monitoring period since the MB approved its introduction in March 2016. With the LCR in place, previous liquidityrelated guidelines could be set aside without compromising on the prudential policy intent,” the BSP added.
The BSP removed the following liquidity requirements: Liquid assets equivalent to at least half of government deposits and other liabilities; foreign currency denominated liquid assets equivalent to at least 30 percent of FCDU liabilities; and foreign currency denominated assets equivalent to 70 percent of FCDU liabilities in the same currency as the liability.
According to the BSP, the adoption of the LCR next year will “provide regulators and the banks themselves a better gauge of the liquidity standing of covered institutions.”
“The LCR framework is in line with the BSP’s initiatives to promote high standards of risk management in the banking system and to foster financial stability,” the central bank said.
The LCR imposes a minimum standard and on a short timeframe to protect banks against liquidity risks.
Credit rating agency Fitch Ratings has assessed that the country’s top 10 big banks are capable of meeting LCR rules. It said 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 has instructed big banks to meet an LCR of 90 percent by early 2018 and 100 percent by 2019.
The LCR rule is aimed at strengthening the ability of individual banks to withstand short-term liquidity shocks. It seeks to ensure that banks hold sufficient cash and other high-quality liquid assets to meet their liquidity needs – including potential deposit withdrawals – under a 30-day stress scenario.