TWO years after the implementation of the banks’ short-term liquidity guidelines, the Bangko Sentral ng Pilipinas (BSP) said it is ready to deploy the other half of its cash sufficiency standards for banks this year.
On Monday the BSP announced the monetary board’s approval of the adoption of the net stable funding ratio (NSFR) for universal and commercial banks.
The NSFR is a measure of the ability of a bank to fund its liquidity needs over one year.
This is the other half of the liquidity coverage ratio (LCR) which was approved for implementation in early-2016.
While the NSFR ensures cash sufficiency for a year, the LCR covers a shorter period of over 30 days in which a bank shall hold sufficient high-quality liquid assets (HQLAs) that can be easily converted into cash to service its liquidity requirements.
The LCR and the NSFR are both the part of the local regulator’s efforts to keep up with international standards under the umbrella of the Basel III regime.
“The NSFR provides an indicator on the availability of funding for an institution’s activities represented by its assets and off-balance sheet exposures. It provides a view of liquidity requirements over one year,” the BSP explained in its press
statementon Monday.
Toward the end of 2017, BSP Governor Nestor A. Espenilla Jr. told reporters that local banks are “fully prepared to comply” with the one-year liquidity standards based on the Central Bank’s consultations then with the industry
Nevertheless, the BSP said it will only require universal and commercial banks, as well as select types of universal and commercial bank subsidiaries, to comply with the LCR and NSFR standards. This is to ensure proportionality in its regulatory implementation.
The smaller institutions—stand-alone thrift banks, rural banks, cooperative banks, and quasibanks—will only be subjected to the minimum liquidity ratio requirement which “better suits” their simpler liquidity risk profile, according to the
Central Bank.
Thus, starting 2019, all institutions covered by the NSFR rule shall maintain an NSFR of 100 percent on both solo and consolidated bases.
The BSP also announced it will adopt an observation period of six months from July 1, to December 31, to facilitate the effective transition to the new guidelines.
During this period, the covered institutions that will not meet the prescribed minimum ratio will be required to submit a funding plan or actions they plan to take to improve their funding profile and comply with the requirement.
Come 2019, however, breaches in the ratio will be dealt with using the tools in the BSP’s menu of supervisory enforcement framework, taking into account the persistence and gravity of the breach.