The Monetary Board, the policy-making body of Bangko Sentral ng Pilipinas, further liberalized the liquidity rules for universal and commercial banks in line with the adoption of the liquidity coverage ratio starting Jan. 1, 2018.
The performance of big banks has been under a monitoring period since the Monetary Board approved the introduction of liquidity coverage ratio in March 2016.
“With the LCR in place, previous liquidity-related guidelines could be set aside without compromising on the prudential policy intent,” Bangko Sentral said in a statement over the weekend.
Among those set aside in lieu of adopting the LCR were the requirements to have liquid assets vis-à-vis a bank’s holdings of government deposits, the 30-percent liquid asset cover, as well as the same currency cover requirement for the foreign currency deposit unit.
Under the previous guidelines, universal and commercial banks are required to maintain 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.
“With the forthcoming formal adoption of the LCR by 2018, these guidelines could be lifted. The LCR data is expected to provide regulators and the banks themselves a better gauge of the liquidity standing of covered institutions,” Bangko Sentral said.
The liquidity coverage ratio framework is in line with Bangko Sentral’s initiatives to promote high standards of risk management in the banking system and to foster financial stability. This is a part of the Basel 3 reform package issued by the Basel Committee on Banking Supervision.
The LCR will complement the minimum capital adequacy rules. While the latter safeguards the industry over solvency risks, the LCR imposes a minimum standard to protect banks against liquidity risks which may happen even if a bank is still solvent.
The Monetary Board earlier approved an observation period from July 1, 2016 to end-2017, wherein banks are required to report their liquidity coverage ratio to Bangko Sentral. The observation period provides banks with enough transition to the new prudential standard.
The Monetary Board also approved the guidelines for the implementation of the Basel 3 leverage ratio in the Philippines in May 2015. This applies to universal and commercial banks as well as their subsidiary banks and quasi-banks.
The leverage ratio under the Basel 3 relates the level of a bank’s Tier 1 capital as against its total on-book and off-book exposure. The Monetary Board approved the ratio to be 5 percent at a minimum.