By Lee C. Chipongian
The Monetary Board, the policy-making body of the Bangko Sentral ng Pilipinas (BSP), has extended up to January next year the observation period for subsidiary banks’ compliance with Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR) to allow more time to adjust to the new metrics.
“This is to give covered banks and quasi banks sufficient time to build up their liquidity position given the combined impact of these liquidity measures,” BSP said in a statement late Friday.
The BSP said the Monetary Board also approved enhancements to the LCR and Minimum Liquidity Ratio (MLR) guidelines after consultations with the banking industry.
As for the LCR and NSFR, the BSP said that during the extended observation period, subsidiary banks and quasi banks will be required to comply with a 70 percent liquidity floor, with the minimum LCR and NSFR requirements still at 100 percent upon effectivity date.
Covered subsidiary banks and quasi banks that are unable to meet the 100 percent LCR and NSFR minimum requirement for two consecutive weeks during the observation period are expected to adopt a liquidity build-up plan even if their said ratios meet the 70 percent floor, said the BSP.
The LCR and NSFR – part of Basel 3 — observation period for subsidiary banks and quasi banks had an end-period of until December 2019 and extended to January next year.
In the meantime, enhancements to the LCR and MLR were adopted. The previous treatment of reporting expected cash flows for each derivative contract in gross amounts has been revised.
Under the new LCR policy, cash inflows and outflows from each derivatives contract are now recognized on a net basis consistent with valuation methodologies for derivatives contracts and the LCR framework, according to the BSP. “This means that derivative contractual payments that the bank will make or deliver to a specific counterparty are netted against derivative contractual payments that the bank will receive from the same counterparty for a derivatives contract,” it said.
The method for computing the MLR was also revised, said the BSP. “The 20 percent MLR aims to ensure that stand-alone thrift, rural and cooperative banks and quasi banks set aside a liquidity buffer that will enable them to withstand liquidity stress events. It relates a bank and quasi banks’ eligible liquid assets to its qualifying liabilities,” said the BSP.
“The revised MLR computation converges with the LCR framework as interbank placements are now counted as eligible liquid assets,” the BSP added. The amount of qualifying liabilities has been adjusted through the application of conversion factors to retail current and regular savings deposits worth P500,000 and below and certain liability accounts.