Banks urged to intensify measures vs liquidity risks

The Bangko Sentral ng Pilipinas (BSP) has issued new rules on liquidity risk management, which requires commitment from banks’ top brass in order to ensure stable sources of funding.

The BSP said in a statement Saturday the Monetary Board, its highest policymaking body, approved on Oct. 12 the revised guidelines on banks’ and quasi-banks’ liquidity risk management, which has been in place since 2006.

“The guidelines emphasize the responsibility of the board of directors to clearly define the tolerance for liquidity risk in a manner that can easily be communicated and understood by personnel. On the other hand, it falls upon senior management to develop funding strategies that are aligned with the set risk tolerance. The strategies must ensure the availability of stable funding sources, the diversification of maturities, and the preservation of alternative funding sources,” the BSP said.

The BSP said it recognized the fact that processes were complex and varied.

“For instance, in measuring risk, simple banks may use static cash flow projections based on balances as of a point in time to determine funding gaps over different time horizons. Complex institutions, however, are expected to employ dynamic approaches that factor in the future changes in their activities and the impact of these changes on their balance sheets,” the BSP added.

According to the BSP, the revised guidelines would mainly affect complex banks and nonbanks’ collateral management, foreign currency, intraday liquidity and intragroup liquidity management, as well as stress testing and contingency funding plans.

All supervised institutions covered by the new rules must develop or amend their liquidity policy and procedures ahead of the Sept. 1, 2018 deadline for full compliance, according to the BSP.

The BSP noted that during the last decade, “significant local and international events and developments have highlighted the importance of banks’ effective management of liquidity risk in ensuring that they function smoothly not only during normal times but also under stress.”

It noted liquidity risks would always be present as banks expand their lending activities. “They must also manage liquidity amid intense competition for retail and wholesale funds,” the BSP said.