Central Bank provides further leeway on banks' liquid asset computation

• Published date: 07 February 2023
• Publication title: Daily Mirror

In a further measure to alleviate the tight liquidity situation faced by the country's banking sector, the Central Bank last week issued fresh instructions providing some leeway to the manner in which the latter calculates and reports its liquidity matrices.

In a Banking Act Determination, the Central Bank last week said the banks - both licensed commercial and specialised banks - could treat (i) qualifying non-financial corporate debt securities and (ii) qualifying non-financial common equity shares as part of their liquid assets when they compute their Statutory Liquid Assets Ratio (SLAR).

The two new instruments have already been considered by the banks, particularly from 2015 onwards, when they compute and report the Liquidity Coverage Ratio (LCR), under the new BASEL III liquidity standards.

At a minimum, the banks are required to maintain 20 percent of their liabilities, excluding capital, as liquid assets under the SLAR and 100 percent under the LCR, although the calculation mechanisms under each are different.

However, in November, last year, considering the extraordinary circumstances caused by the economic crisis, the Central Bank in a Direction asked the banks to maintain a minimum of 90 percent in the LCR up to December 2022, as a short-term measure to allow further time for the banks to adjust their liquidity profiles.

In the same Direction, the Central Bank allowed the banks to maintain a minimum SLAR of 20 percent on a consolidated basis for the overall bank, until further notice, in a departure from the practice of maintaining the SLAR separately for...