The Monetary Board (MB) approved the extension of the observation period for the Basel III Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR) compliance of subsidiary banks/quasi-banks (QBs) of universal and commercial banks (U/KBs) up to end-December 2019, moving the effectivity dates of said ratios to 1 January 2020. This is to give covered banks/QBs sufficient time to build up their liquidity position given the combined impact of these liquidity measures.

During the extended observation period, subsidiary banks/QBs shall be required to comply with a 70 percent LCR and NSFR floor, with the minimum LCR and NSFR requirements still at 100 percent upon effectivity date. Covered subsidiary banks/QBs that are unable to meet the 100 percent LCR and NSFR minimum requirement for two (2) consecutive weeks during the observation period are expected to adopt a liquidity build-up plan even if their said ratios meet the 70 percent floor.

The MB also approved enhancements to the LCR and Minimum Liquidity Ratio (MLR) guidelines in response to feedback received as a result of the BSP's continuing dialogue with the banking industry.

In the LCR framework, the previous treatment of reporting expected cash flows for each derivative contract in gross amounts has been revised. Under the new policy, cash inflows and outflows from each derivatives contract shall now be recognized on a net basis consistent with valuation methodologies for derivatives contracts and the Basel III LCR framework. This means that derivative contractual payments that the bank will make or deliver to a specific counterparty are netted against derivative contractual payments that the bank will receive from the same counterparty for a derivatives contract.

In a similar manner, the method for computing the MLR was revised. The 20 percent MLR aims to ensure that stand-alone thrift, rural and cooperative banks and QBs set aside a liquidity buffer that will enable them to withstand liquidity stress events. It relates a bank/QB's eligible liquid assets to its qualifying liabilities. The revised MLR computation converges with the LCR framework as interbank placements are now counted as eligible liquid assets. Moreover, the amount of qualifying liabilities has been adjusted through the application of conversion factors to retail current and regular savings deposits worth P500,000 and below and certain liability accounts.

Source: Bangko Sentral ng Pilipinas (BSP)