Global debt watcher Moody’s Investors Service said Monday the Basel 3 liquidity rules adopted by Bangko Sentral ng Pilipinas are credit positive for domestic banks.
“The proposed LCR rules are credit positive for the Philippine banks because they will strengthen their liquid asset buffers and reduce their liquidity risks. The LCR rules will increase safeguards in the bank’s asset liability management, particularly prudent in light of the strong 16-percent average credit growth between 2011 and 2015,” Moody’s said.
“The LCR requirements will ensure that banks maintain sufficient liquidity buffers and focus their funding on stable sources such as customer deposits, as opposed to market-sensitive wholesale funding,” it said.
Bangko Sentral announced last week the imposition of a liquidity coverage ratio to ensure that Philippine banks had ample high-quality liquid assets to withstand a 30-day liquidity stress scenario.
The minimum LCR requirement will initially be set at 90 percent, effective January 2018, and subsequently increased to 100 percent from January 2019 onwards. The banks will start reporting their LCR data to BSP in July 2016.
Moody’s said most rated Philippine banks were well positioned to comply with the minimum LCR requirements because they had strong core customer deposits and ample buffers of qualifying liquid assets.
“We expect banks such as BDO Unibank Inc., Philippine National Bank and Bank of the Philippine Islands to have an advantage in meeting the new requirements because they benefit from having a particularly large share of retail savings deposits, which have lower outflow assumptions in the 30-day stress scenario than corporate deposits,” Moody’s said.
It said Philippine banks were 85-percent deposit-funded on average and relied less on wholesale funds.
Moody’s said local banks also held high-quality liquid assets —mostly cash and Philippine government securities—that amounted to over 38 percent of their total liabilities on average, providing sizable buffers against the assumed cash outflows in these banks’ LCR calculation.
Fitch Ratings earlier said universal and commercial banks in the Philippines would be able to comply with the liquidity coverage ratio because of their strong financial status.
It said ample domestic system liquidity and banks’ balance sheets being mostly funded by deposits were positive structural factors that would help banks comply with the liquidity coverage ratio requirements.
