BSP adopts net stable funding ratio

The Monetary Board approved the adoption of the net stable funding ratio (NSFR) for universal and commercial banks (U/KBs).

The NSFR is a measure of the ability of a bank to fund its liquidity needs over one year to complement the liquidity coverage ratio (LCR), which covers a shorter period of over 30 days in which a bank must hold sufficient high quality liquid assets that can be easily converted into cash to serve their liquidity requirements. Both ratios are aimed at strengthening the ability of banks to withstand liquidity stress and promote resilience of the banking sector.

The BSP requires only U/KBs and select types of U/KB subsidiaries to comply with the LCR and NSFR standards. The smaller institutions comprising of stand-alone thrift banks, rural banks, cooperative banks, and quasi-banks (QBs) are subject to the minimum liquidity ratio (MLR) requirement.

The NSFR provides an indicator on the availability of funding for an institution’s activities represented by its assets and off-balance sheet exposures. It provides a view of liquidity requirements over one year. Beginning Jan. 1, the covered institutions must maintain an NSFR of 100 percent on both solo and consolidated bases.

To ensure a smooth transition to the new standard and allow prompt assessment and calibration of the components of the NSFR, the BSP is adopting an observation period from July 1 to Dec. 31.

During this period, institutions that will not meet the prescribed minimum ratio are required to submit a funding plan or actions that will be taken to improve their funding profile and comply with the requirement.

By Jan. 1, breaches in the ratio will be dealt with using the tools in the BSP’s menu of supervisory enforcement framework taking into account the persistence and gravity of the breach.