The regular reports will guide the degree of the central bank’s supervisory engagement with individual institutions, BSP deputy governor Chuchi Fonacier told Regulation Asia.
The BSP (Bangko Sentral ng Pilipinas) on Tuesday (17 November) issued a memorandum to banks asking them to start submitting quarterly reports on their LIBOR exposures, as part of efforts to ensure they are able to transition to alternative reference rates by end-2021, in line with global timelines.
“This particular issuance sets forth a requirement for all universal and commercial banks and their subsidiary banks to submit quarterly reports on the extent of the remaining LIBOR and LIBOR-related exposures,” BSP deputy governor Chuchi Fonacier told Regulation Asia.
The first quarterly report is due on 15 December 2020, using 30 September 2020 as the reference date.
“This information is expected to guide the degree of the BSP’s supervisory engagement with individual institutions with regard to the development and implementation of their transition plans,” Fonacier said.
“This regular report of exposures will also allow the BSP to gauge banks’ progress in actively winding down their exposures and reducing their reliance on LIBOR as the cessation of the benchmark approaches.”
Banking transactions in the Philippines that may referenced LIBOR include foreign-currency loans and bonds, and derivatives transactions such as cross currency swaps. Yet, Philippine banks have relatively limited exposures to LIBOR compared to other jurisdictions, Fonacier said.
Estimates based on financial reports submitted to the BSP showed that LIBOR-based assets of universal and commercial banks maturing beyond 2021 accounted for under 9 percent of resources, and that at most 5 percent of liabilities maturing beyond 2021 reference LIBOR.
The BSP notes that the industry has communicated the intention to adopt globally accepted alternative reference rates to replace LIBOR. SOFR and other alternative rates for term instruments are under consideration.
According to Fonacier, banks have largely already established internal transition programmes to identify and implement the necessary changes. “They also recognise the importance of educating clients on the transition and understanding the capabilities of clients for planning.”
The memorandum requires banks to have a viable transition plan in place to ensure that the cessation of LIBOR does not disrupt their operations and the efficient provision of services to clients and other market counterparties. “Overall operational readiness is essential to the smooth adoption of alternative reference rates,” the memorandum said.
As such, the BSP expects banks to be equipped with the necessary systems, infrastructure, and contractual arrangements necessary for LIBOR’s phaseout. Banks are urged to inform the BSP of challenges they encounter during the transition.
Additional reporting from BusinessWorld.