Additional liquidity requirements for banks a ‘credit positive’ — Moody’s
MANILA, Philippines — The Bangko Sentral ng Pilipinas’ decision to impose tighter liquidity rules on big banks to strengthen their funding resilience is credit positive, an analyst at Moody’s Investors Service said Thursday.
Last Monday, the BSP announced it will adopt the Net Stable Funding Ratio, or NSFR, for universal and commercial banks beginning January 1 next year.
Under the NSFR, universal and commercial lenders are required to maintain enough money supply to fund their liquidity needs for one year to ensure banks can service withdrawals or process transaction.
“The banks’ adherence to NSFR rules will limit their reliance on less stable funding sources, reducing their sensitivity to tightening market liquidity in times of stress,” Moody’s Senior Analyst Simon Chen said in a statement.
“We expect the new rule to raise the industry’s demand for current and savings account and term deposits, and long-term borrowings as banks seek to expand their stable funding base to support future asset growth,” Chen added.
The central bank’s new rules are a key part of the Basel III regulatory framework—a set of measures that aims to strengthen banks’ regulation, supervision and risk management to prevent a repeat of a global financial crisis.
The central bank said the additional requirement will complement the Liquidity Coverage Ratio, which requires big players to hold sufficient “high quality liquid assets” that can be easily converted into cash to cover their expected funding needs for 30 days.
To ensure a smooth transition, the BSP said it will conduct an observation period of six months from July 1, 2018 to December 31, 2018 to give enough room for “prompt assessment and calibration” of the components of the NSFR.
Once the new requirements are implemented next year, the central bank will impose sanctions on banks that will not meet the prescribed minimum ratio depending on the “persistence and gravity” of the breach.
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