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BSP okays liquidity standards for small banks

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By Lee C. Chipongian

The Bangko Sentral ng Pilipinas (BSP) has approved the minimum liquidity requirement for smaller banks to improve its capability to withstand stress or shocks.

In a statement, the BSP said the minimum prudential liquidity requirements set for thrift banks, rural banks, cooperative banks, and quasi- banks will enhance their “resilience to liquidity stress events.”

It took the BSP more than a year to craft a different rule or the Minimum Liquidity Ratio (MLR) for the smaller banks versus the big banks’ Liquidity Coverage Ratio (LCR) which was issued in 2016. The LCR is 90 percent since January 1 this year.

The MLR measures, in the meantime, are based on banking categories. For example, the subsidiaries and affiliates of universal and commercial banks are already covered for consistency in managing liquidity risks and these will be subject to a minimum LCR of one hundred percent from January 1, 2019. As for the stand-alone smaller banks, they will be subject to an MLR of 20 percent by next year.

“The computation of the liquidity ratio is simple and straightforward,” said the BSP. “It is expressed as a percentage of a covered institution’s eligible stock of liquid assets to its total qualifying liabilities.”

Smaller banks’ liquid assets should be “unencumbered and readily liquefiable” while the qualifying liabilities include both on-balance sheet and off-balance sheet commitments. “Based on impact studies, BSP believes that covered institutions will be able to readily adjust to the new standard,” said the BSP.

The BSP also directed the smaller banks to monitor the level of their respective ratios this year while they review the rules for any adjustment.

“Once the minimum requirements are implemented in 2019, the BSP will address breaches in accordance with the persistence and gravity of the breach. Supervisory actions may therefore range from heightened monitoring, to requiring remedial measures, and finally, imposing sanctions,” it said.

Domestic banks have been under Basel 3 rules and standards since it was first adopted on January 1, 2014 by the BSP, one of the first adopters of the reform package in the region.

“The BSP considers the adoption of the LCR and the MLR as a significant step in aligning its supervisory framework with international standards,” said the BSP.

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