Big banks ready for new rule – Moody’s

Moody’s Investors Service believes the biggest Philippine banks will be able to comply with new liquidity requirements set to take effect next year.

In a statement on Thursday, the debt watcher said that 10 rated Philippine banks would benefit from adoption of the net stable funding ratio (NSFR), recently approved by the Monetary Board as part of ongoing efforts to strengthen the domestic banking industry.

The NSFR, a measure of a bank’s ability to fund liquidity needs over a year, is part of the Basel III reform package drawn up by international regulators response to the 2007-2008 global financial crisis.

Beginning January 1, 2019, banks along with select subsidiaries will have to maintain an NSFR of 100.0 percent on both solo and consolidated bases.

Moody’s-rated Philippine banks are Land Bank of the Philippines, China Banking Corp., United Coconut Planters Bank, BDO Unibank Inc., Bank of the Philippine Islands, Philippine National Bank, Union Bank of the Philippines, Rizal Commercial Banking Corp., Metropolitan Bank & Trust Co. and Security Bank Corp..

“These banks currently have strong capital profiles and large bases of current and savings account (CASA) deposits, which are among the most favorable funding sources under NSFR rules, and low reliance on short-term confidence-sensitive wholesale funding,” the credit rater noted.

Moody’s said it expected the new rule to raise the industry’s demand for CASA and term deposits, plus long-term borrowings, as banks seek to expand their stable funding base to support future asset growth.

“This could drive up compliance costs for midsize banks such as Security Bank Corporation (Baa2 stable, baa37 ) and Union Bank of the Philippines (Baa2/Baa2 stable, baa3), which have smaller deposit franchises and generally offer higher deposit rates in the market,” it added.

“To ensure a smooth transition to this new prudential standard and to allow prompt assessment and calibration of the components of the NSFR, the Bangko Sentral is adopting an observation period of six months from 1 July 2018 to 31 December 2018,” it noted.

Over the next six months, covered institutions unable to meet the prescribed minimum will be required to submit a funding plan or detail actions that will improve their funding profiles and help them achieve the requirement.

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