145 LIQUIDITY RISK MANAGEMENT
a. Minimum requirement. The LCR is the ratio of HQLAs to total net cash outflows. Under a normal situation, the value of the ratio shall not be lower than 100% on an ongoing basis. While the LCR is expected to be met in a single currency (i.e., in peso equivalent terms of all currencies), banks are expected to be able to meet their liquidity needs in each currency and maintain HQLA consistent with the distribution of their liquidity needs by currency. The detailed LCR framework is provided in Part 1 of Appendix 72.
b. Reporting and monitoring requirements – Covered banks shall comply with the minimum LCR requirement on a daily basis, and shall have appropriate systems in place to ensure the same. For reporting purposes, covered banks shall submit a report in accordance with Appendix 7.
c. Implementation. The implementation of the minimum LCR shall be phased in to help ensure that the banks concerned can meet the standard through reasonable measures without disrupting credit extension and financial market activities. In order to facilitate compliance, banks shall undergo an observation period before the LCR becomes a minimum requirement. The timelines are set out in the table below:
|Observation Period||Minimum LCR|
|UBs/KBs||01 July 2016 –
31 December 2017
|01 January 2018 and
thereafter – 90%
|01 January 2019 &
thereafter – 100%
|Subsidiary Banks and QBs
|Until 31 December 2018|
a. Minimum requirement – A prudential MLR of twenty percent (20%) shall apply to banks on an ongoing basis absent a period of financial stress. The liquidity ratio is expressed as a percentage of a bank’s eligible stock of liquid assets to its total qualifying liabilities.
(1) The stock of liquid assets shall consist of:
(a) Cash on hand;
(b) Reserves in the Bangko Sentral;
(c) Overnight and term deposits2 with the Bangko Sentral, including reverse repos where the Bangko Sentral is the counterparty;
(d) Eligible debt securities representing claims on or guaranteed by-
(i) The Philippine national government (NG) and the Bangko Sentral; or
(ii) Sovereigns, central banks of foreign countries, or by multilateral organizations that are assigned a zero percent risk weight under Part III of Appendix 62; and
(e) Deposits in other banks:
(2) The qualifying liabilities shall consist of the following:
(a) Total liabilities; and
(b) Irrevocable obligations under off-balance sheet items, such as:
(i) Guarantees issued;
(ii) Trade related guarantees;
(iii) Letters of credit; and
(iv) Other committed credit lines.
b. Reporting and monitoring requirements. Covered banks shall comply with the MLR on a daily basis, and shall have the appropriate systems in place to ensure the same. For reporting purposes, covered banks shall submit a monthly report on their compliance with the MLR to the appropriate supervising department of the Bangko Sentral. The report shall be submitted on solo basis in peso-equivalent terms using the prescribed form within fifteen (15) banking days after the end of the reference period, effective 1 January 2019.
c. Implementation. In order to facilitate compliance with the MLR, stand-alone TBs, RBs, Coop Banks and QBs shall undergo a one-year observation period beginning 1 January 2018 until the MLR takes effect on 1 January 2019.
a. Minimum requirement. The NSFR is the ratio of a covered bank’s available stable funding (ASF) to its required stable funding (RSF), as shown below:
|Basel III NSFR||=||Available stable funding (ASF)|
|(0%)||Required stable funding (RSF)|
b. Reporting and monitoring requirements. Covered banks shall comply with the minimum NSFR on a daily basis, and shall have appropriate systems in place to ensure the same. For reporting purposes, the covered banks shall submit a report of their NSFR to the Bangko Sentral in accordance with Appendix 7.
c. Implementation. The implementation of the minimum NSFR shall be phased in to help ensure that the covered banks can meet the standard through reasonable measures without disrupting credit extension and financial market activities. In order to facilitate compliance, covered banks, shall undergo an observation period before the minimum NSFR becomes a requirement. The timelines are set out in the table below:
|Observation period||01 July 2018 – 31 December 2018|
|Actual implementation||01 January 2019 and thereafter – 100%|
|Submission Deadlines||30 banking days from measurement date|
a. General Provisions
(1) While the minimum prudential liquidity requirements establish common parameters for stress testing, they should be viewed as minimum supervisory requirements. Covered banks are expected to conduct their own stress tests in accordance with Part IX of Appendix 71 as part of their liquidity risk management process in order to identify the risk drivers that may lead to drastic fluctuations in their liquidity positions. Accordingly, banks should be able to assess the level of liquidity they should hold, which could possibly go beyond the regulatory minimum.
(2) It shall be the responsibility of the board of directors and senior management, or the equivalent governing bodies in the case of foreign bank branches, to institute a system that would ensure compliance with the minimum liquidity requirements, the accuracy of their calculations, and the integrity of the related monitoring and reporting system. It is likewise the responsibility of senior management to report shortfalls in the minimum liquidity requirements both to their board of directors immediately and to the Bangko Sentral within the prescribed timelines.
(3) As the stock of liquid assets is intended to serve as a defense against the potential onset of liquidity stress, banks are allowed to use their stock of liquid assets as necessary during a period of financial stress in order to meet unforeseen liquidity needs, thereby causing the LCR to temporarily fall below the minimum requirement or the MLR to be breached. This may also alter the stable funding profile of banks and result in non-compliance with the required NSFR.
b. Liquidity ratios below the minimum
(1) In the event that a shortfall in the stock of HQLA/eligible liquid assets/available stable funding occurs on three (3) banking days within any two-week rolling calendar period, thereby causing the LCR or NSFR to fall below the minimum threshold/the MLR to be breached on such days, the bank must notify the appropriate supervising department of the Bangko Sentral, of such non-compliance within the banking day immediately following the occurrence of the third liquidity/stable funding shortfall, notwithstanding the restoration of the LCR or NSFR/compliance with the MLR on the day that the shortfall must be reported.
(a) The dates the shortfalls occurred;
(b) The reason/s or factor/s leading to the utilization of the stock of liquid assets and non-compliance with the minimum LCR/MLR/NSFR;
(c) The action/s the bank has taken and/or will take to achieve full compliance with the minimum requirement;
(d) The expected duration and possible extent of the shortfall (although this may no longer be applicable if the LCR or NSFR has been restored/MLR has been met); and
(e) A commitment to submit its LCR/MLR/NSFR Report weekly until the bank is able to comply with the required LCR/NSFR/MLR.
(2) The Bangko Sentral will require effective and timely remedial action from the bank to address the deficiency in its liquidity position within a committed timeline under the following circumstances:
(a) The liquidity requirement is not met for a prolonged period of time or if the Bangko Sentral has determined that the bank is otherwise materially non-compliant with the minimum LCR, NSFR or the MLR; or
(b) The reported shortfall is caused by a firm-specific stress situation, i.e., based on operational issues of the bank which are part of an outstanding supervisory concern (such as imprudent management of liquidity consisting of material and/or persistent breaches of liquidity policies and limits, large funding mismatches and/or concentrations, undue reliance on high cost funds).