Fitch: Big Philippine Banks Well-Placed for Basel Liquidity Regs
OREANDA-NEWS. Major universal and commercial banks in the Philippines should be well-positioned to meet new Basel 3 liquidity rules, says Fitch Ratings. Ample domestic system liquidity, and banks' balance sheets being mostly funded by deposits, are positive structural factors that will help banks comply with upcoming Liquidity Coverage Ratio (LCR) requirements. Nonetheless, those with relatively large pools of corporate deposits will have a greater reason to pursue retail deposits more aggressively, and long-term debt issuance may rise.
The Philippine regulator announced on 1 March new rules requiring universal and commercial banks to meet an LCR of 90% by 1 January 2018, rising to 100% by 1 January 2019. Besides meeting the overall requirement, banks will likely need to monitor their LCRs for certain currencies where they have significant activity as well. The US dollar could be one such currency for many banks, other than the peso.
The LCR rule is aimed at strengthening the ability of individual banks to withstand short-term liquidity shocks. It seeks to ensure that banks hold sufficient cash and other high-quality liquid assets to meet their liquidity needs - including potential deposit withdrawals - under a 30-day stress scenario.
System liquidity is healthy in the Philippines, as evident in the reported banking system loan-to-deposit ratio of 70.7% and liquid assets-to-deposits of 53.5% at end-2015. Banks' surplus funds are often invested in peso or US dollar-denominated Philippine government bonds, which would typically qualify as high-quality liquid assets under the LCR framework - for US dollar bonds as long as they back US dollar liabilities.
More detailed guidelines have yet to be published, but Fitch's internal estimates for its rated banks indicate broadly that most of the top 10 domestic banks should comfortably meet the LCR rules, based on the last available annual reports. That said, loan growth has exceeded deposit and M3 liquidity growth over the last five years, and system liquidity would tighten gradually if this dynamic were to continue. Against this backdrop, the LCR regime will enforce an added layer of balance-sheet discipline on the Philippine universal and commercial banks, in addition to existing conservative regulatory hurdles on capital.
The new rules will provide even more of an incentive for banks to raise retail deposits, particularly customers' current and savings accounts. Banks with strong retail deposit franchises will enjoy an advantage in meeting the LCR hurdle, as such balances are usually more stable in times of stress. Those that rely more on corporate deposits, however, could be subject to higher run-off assumptions under the LCR calculations, which would result in lower ratios on a like-for-like basis.
We believe banks - especially those outside the big three - are likely to continue their push to open more branches and ATMs, in part to widen their retail deposit base. This is likely to place further pressure on operating costs and weigh on profitability in the medium term - although profit growth should remain robust overall amid broadly-resilient economic conditions. Some banks may also issue more long-term debt in order to lengthen their liability profiles and expand their LCR buffers.
Banks are to start reporting their LCR from 1 July 2016, and the regulator has stated that universal and commercial banks "will readily comply with the new standard". Net stable funding ratio (NSFR) rules are being finalised, and an exposure draft may be issued within the year.
Комментарии