BSP plans liquidity tests for big banks

The Bangko Sentral ng Pilipinas (BSP) intends to enforce liquidity tests for domestic systemically important banks by mandating access to its short-term lending facility and annual testing of that access, as part of reforms aimed at expediting liquidity support during funding stress periods. The Discount Window Facility (DWF) serves as an additional source of short-term funds that eligible banks can utilize when liquidity is required.

Banks can borrow from the facility using eligible loans or securities issued by the national government and the BSP as collateral. According to a draft circular, all domestic systemically important banks must maintain a DWF line and conduct an access test annually, while other eligible banks can establish similar lines as part of their contingency funding plans and periodically test their ability to use the facility.

However, maintaining a DWF line does not guarantee borrowing rights, as each withdrawal will still be subject to the central bank's requirements. Domestic systemically important banks will have three months from the circular's implementation to comply with the requirement. The BSP also aims to simplify the documentation and eligibility criteria, provide financially stable banks with more collateral options, and allow loan documents to be verified before borrowing.

The BSP's Department of Loans and Credit will conduct assessments of the banks' financial soundness when a DWF line is requested and every six months thereafter, using the most recent supervisory data. Banks that fail to meet six financial-soundness conditions, such as keeping the nonperforming loan ratio at or below the industry average and maintaining a positive demand deposit account balance with the BSP, will only be able to borrow against securities issued by the national government or the BSP.