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MB Liberalizes Liquidity Rules for U/KBs

02.17.2017

The Monetary Board (MB) further liberalized other liquidity metrics applicable to universal and commercial banks (U/KBs), in view of the adoption of the Liquidity Coverage Ratio (LCR) beginning 1 January 2018.

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. With the LCR in place, previous liquidity-related guidelines could be set aside without compromising on the prudential policy intent.

Among those set aside in lieu of adopting the LCR were the requirements to have liquid assets vis-à-vis a bank’s holdings of government deposits, the 30 percent liquid asset cover as well as the same currency cover requirement for the foreign currency deposit unit (FCDU).

Under the previous guidelines, U/KBs are required to maintain:

  1. Liquid assets equivalent to at least half of government deposits and other liabilities;
  2. Foreign currency denominated liquid assets equivalent to at least 30 percent of FCDU liabilities; and
  3. Foreign currency denominated assets equivalent to 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 LCR framework is in line with the Bangko Sentral ng Pilipinas’ initiatives to promote high standards of risk management in the banking system and to foster financial stability.

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