THE central bank has relaxed the rules on liquidity metrics ahead of the framework on Liquidity Coverage Ratio (LCR) that commercial universal banks must adopt and adhere to starting next year.
“The performance of U/KBs with respect to the LCR has been under a monitoring period since the MB approved its introduction in March 2016,” the Bangko Sentral ng Pilipinas (BSP) said in a statement announcing that the Monetary Board (MB) has liberalized other liquidity metrics applicable to universal and commercial banks (U/KBs).
“With the LCR in place, previous liquidity-related guidelines could be set aside without compromising on the prudential policy intent,” the central bank noted.
In view of the upcoming LCR adaptation, the MB set aside the following requirements:
To have liquid assets vis-à-vis government deposits held by a big bank
To have a 30 percent liquid asset cover on foreign currency deposit unit (FCDU)
To have the same currency cover on FCDU liabilities
Previously, big banks were supposed to keep liquid assets equivalent to at least half of government deposits and other liabilities. Commercial and universal banks were also required to keep foreign currency-denominated liquid assets equivalent to at least 30 percent of FCDU liabilities, as well as 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,” the BSP said.
The policy-setting MB said the LCR framework is in line with the initiatives to promote high standards of risk management in the banking system and foster financial stability.
Debt watchers Moody’s Investors Service, Standard & Poor’s (S&P) and Fitch Ratings have given the Philippine banking system an investment grade rating with a stable outlook.
According to Moody’s, the stable outlook was primarily based on stable funding and liquidity.
S&P holds a positive notion on the high liquidity and stable numbers reflected by the system to offset the low income level of Filipinos in general, and the limited legal protection of the BSP as industry regulator.
On the other hand, the latest commentary from Fitch noted liquidity conditions should remain comfortable this year as liquidity buffers, creation of credit and foreign remittance inflows exist to cushion against debt and currency market uncertainties.
“We expect banks to continue to prize stable deposits and term funding ahead of Basel III LCR requirements that will be phased in over 2018-2019,” according to Fitch.
Sustained economic development and further improvement in system regulation and risk management could strengthen banks’ overall credit profiles if they maintain their existing healthy financial metrics and balance-sheet strengths, it said.