Regulators mulling over new liquidity rules

Philippine banks may have to deal with even stricter regulations—this time targeting their liquidity—as authorities run through a list of new measures drawn up by international policymakers in the aftermath of the 2008 financial crisis.

Under the proposed rules, the Bangko Sentral ng Pilipinas (BSP) may require banks to hold liquid assets, either in the form of cash or securities that can easily be disposed of, and must be enough to cover at least a year’s worth of liabilities.

“The conclusion after the crisis was that, you could be solvent and have enough capital, but you … might not have the cash to pay your debts,” BSP Assistant Governor Johnny Noe Ravalo said in a recent interview.

New liquidity rules are among the so-called “Basel III” regulations that were agreed upon by global regulators in response to the 2008 financial crisis.

The new rules will require banks to set aside enough liquidity to cover at least three months’ worth of short-term, and a year’s worth of long-term, liabilities.

These include debt payments and expected withdrawals by depositors.

If all goes well, he said, the BSP will “expose” the draft rules on liquidity to the banking industry to solicit comments. At the latest, the exposure draft may be released January next year.

The global banking industry has undergone major reforms since the start of the year, the latest of which are the new rules on liquidity. Last January, stricter rules on capitalization were imposed on local banks to ensure buffers for losses were adequate.

Higher minimum capital levels for all banks, which are to be computed based on the size of their physical networks, were also announced this year. This rule will be implemented over the next three years.

Prescribed underwriting standards were also revised last month, to force banks to focus more on borrowers’ income instead of looking at what assets a client has that can be put up as collateral. A consequence of this rule was that the acceptability of real estate as collateral was capped at 60 percent of its appraised value.

These new rules are meant to further strengthen local banks, although the country’s stable financial system is frequently cited as one of the pillars that keep the Philippine economy steady.