The central bank’s newly adopted Basel liquidity rules will be “credit positive” for universal and commercial banks in the Philippines, debt watcher Moody’s Investors Service said.
“The proposed LCR [liquidity coverage ratio]rules are credit positive for the Philippine banks because they will strengthen their liquid asset buffers and reduce their liquidity risks,” Moody’s said in a statement released on Monday.
Last week, the Bangko Sentral Pilipinas (BSP) announced the imposition of LCR that would ensure that Philippine banks have ample high-quality liquid assets (HQLA) 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 onward. The banks will start reporting their LCR data to BSP starting July 2016.
Moody’s said the LCR rules will increase safeguards in the bank’s asset liability management, particularly prudent in light the strong 16 percent average credit growth between 2011 and 2015.
“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.
The credit ratings firm believes that most of the rated Philippine banks are well positioned to comply with the minimum LCR requirements because they all have strong core customer deposits and ample buffers of qualifying liquid assets.
It expects 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.
In addition, Moody’s said the banks hold high quality liquid assets–mostly cash and Philippine government securities–that amount to over 38 percent of their total liabilities on average.
“These features provide sizable buffers against the assumed cash outflows in these banks’ LCR calculation,” it said.
“Banks in the Philippines are already required to maintain a reserve requirement of 20 percent of their deposit liabilities. We expect some or all of these reserves will be eligible to be counted towards HQLA under the LCR norms,” it added.