Liquidity

Coverage Ratio
(LCR): A tool for
Liquidity Risk
Management

BoC Peru
Content

1. Something about me
2. Key Concepts
3. Liquidity Coverage Ratio (LCR) ratio
4. LCR Peru
5. LCR complements with other metrics
6. BOC next steps
Something about me

• Julio Pasache, 36Y

• 4 years married, 2 kids

• 2004: Bachelor of Management and Finance (UPC-Peru)

• 2011: Master of Finance (UNSW-Australia)
• 2018: MBA (HBS-UK)

• 2012: Work in Ningbo-China

• +8Y working in Finance, Capital Markets, Market and
Liquidity Risk and 1Y in university lecturing.
 Key Concepts

• What is Liquidity?

The ability to convert an

asset into cash at full value.
 Key Concepts

• What is Liquidity Risk?

The risk arising from the inability to meet obligations in time when
they come due.
 Key Concepts

• What is the objective of Liquidity Risk Management?

It is to ensure that sufficient resources are available to face a set of
unexpected events that affect liquidity.
Liquidity Coverage Ratio

A failure to adequately monitor and control

liquidity risk led a number of financial firms
into difficulty in 2007, and the years that
followed, and was a major cause of the Great
Financial Crisis.

To improve internationally active banks' short-

term resilience to liquidity shocks, the LCR is
introduced as part of the Basel III post-crisis
reforms.
The Bank of International
Settlements is the bank for
Central Banks and other
regulatory and supervisory
authorities across the globe.
 Liquidity Coverage Ratio

The LCR is designed to ensure that banks hold a sufficient reserve of high-quality liquid
assets (HQLA) to allow them to survive a period of significant liquidity stress lasting 30
calendar days.

The supervisory scenario capturing the period

of stress combines elements of bank-specific
liquidity and market-wide stress and includes
many of the shocks experienced between 2007
and 2012.
The 30-calendar-day stress period is the
minimum period deemed necessary for
corrective action to be taken by the bank’s
management or by supervisors.
Liquidity Coverage Ratio

HQLA Product Factor

Level 1 Cash, Gov Bonds 100%
Level 2 Corporate Bonds 85%
Level 2B MBS, Traded Stocks 50%

Inflows 30days: Outflows 30days:

Payments from loans and derivatives
with a factor rate
Deposits Retail and Wholesale
classified by Stable and Less Stable.
Borrowing from another financial
institutions.
Derivatives.
Liquidity Coverage Ratio
Introduction
Observation mínimum
standards

Coefficient for short term Ability to pay liabilities

LCR 2011 2015 comiing due for the next 30
liquidity management days

Minimum LCR

BIS

SBS 80% 80% 80% 90% 100%

LCR Peru
• In Peru, the LCR was developed with a modification in the formula
but the concept is the same:

≥ 100%

• For BOC:
• Internal Limit: 105%
• Early Warning: 110%
 LCR Peru
Importe base Importe ajustado
ACTIVOS LÍQUIDOS DE ALTA CALIDAD (2) MN (en PEN) ME (en USD) Factor MN (en PEN) ME (en USD)
Caja 100%
Fondos netos disponibles en el BCRP (3) 100%
Encaje liberado por los flujos salientes (4) 100%
Valores representativos de deuda emitidos por el BCRP (5) 100%
Valores representativos de deuda emitidos por el Gobierno Central (5) 100%
Valores representativos de deuda emitidos por Gobiernos del Exterior (6) 85%
Intercambio de liquidez USD por PEN (7) 95%
Intercambio de liquidez PEN por USD (7) 95%
To tal (I)
FLUJOS ENTRANTES 30 DIAS
Disponible (8) 100%
Fondos disponibles en empresas del sistema financiero nacional (8) 100%
Fondos disponibles en bancos del exterior de primera categoría (8) 100%
Fondos interbancarios netos activos (9) 100%

Créditos - deudores no minoristas (10) 50%

Créditos - pequeñas empresas y micro-empresas (10) 50%
Créditos - hipotecarios para vivienda (10) 50%
Créditos - consumo (10) 50%
Cuentas por cobrar - derivados para negociación (11) 80%
Cuentas por cobrar - otros (11) 80%
Posiciones activas en derivados - Delivery (12) 100%
To tal (II)
 LCR Peru
Importe base Importe ajustado
MN (en PEN) ME (en USD) Factor MN (en PEN) ME (en USD)
FLUJOS SALIENTES 30 DIAS
Fondeo estable (13) 7.5%
Fondeo menos estable - personas naturales y jurídicas sin fines de lucro (13) 15%
Fondeo menos estable - personas jurídicas con fines de lucro (13) 15%
Fondeo grandes acreedores - fondos (13) 50%
Fondeo grandes acreedores - otros (13) 30%
Obligaciones relacionadas con inversiones negociables y a vencimiento ≤ 30 días (14) 100%
Otras obligaciones con el público ≤30 días (14) 100%
Fondos interbancarios netos pasivos (9) 100%
Depósitos de empresas del sistema financiero y OFI (15) 100%
Adeudos y obligaciones financieras con vencimiento ≤ 30 días (16) 100%
Adeudos y obligaciones financieras con vencimiento de 31 a 360 días (16) 30%
Valores, títulos y obligaciones en circulación ≤ 30 días (14) 100%
Cuentas por pagar - derivados para negociación (17) 100%
Cuentas por pagar - otros (17) 100%
Posiciones pasivas en derivados - Delivery (12) 100%
Líneas de crédito no utilizadas y créditos concedidos no desembolsados - personas
naturales y jurídicas sin fines de lucro (18) 5%
Líneas de crédito no utilizadas y créditos concedidos no desembolsados - personas
jurídicas con fines de lucro (18) 5%
To tal (III)
Ratio de Cobertura de Liquidez [[ I + Min(II;75%*III)] / III ] x 100
LCR Peru
LCR complements with other metrics
• The LCR is very important to measure on a daily basis but not the
only one.
• There is a set of metrics to consider for an effective Liquidity Risk
Management.
• Another important tool complementing the LCR is the Liquidity Net
Cumulative Gap Report.
• Liquidity Net Cumulative Gap Report: the Bank measures the gaps
by terms and currencies, distributing the assets and liabilities due
according to their contractual or estimated maturity. We need to
construct the model.
LCR complements with other metrics

For the Balance sheet in all buckets, it becomes an interest rate risk
matter (next session)
 BOC: Regulatory Limits and next steps
• Liquidity Ratio
≥ 8% ≥20%

Indicator Regulatory Limit Internal limit Early warning

Not less than 8%. This limit

will increase by 10% when
Not less than 9%. If the Not less than 10%. If
the liabilities concentration regulatory limit the regulatory limit
Liquidity ratio in of the previous month
LCY (debt to 20 largest increases to 10%, then increases to 10%,
depositors regarding the the internal warning then the internal
will be 11%. warning will be 12%.
total deposits) is higher
than 25%.

Not less than 20%. This

limit will increase by 25% Not less than 23%. If Not less than 25%. If
when the liabilities
Liquidity ratio in concentration of the the regulatory limit the regulatory limit
increases to 25%, then increases to 25%,
FCY previous month (debt to 20
largest depositors regarding the internal warning then the internal
will be 27%. warning will be 30%.
the total deposits) is higher
than 25%.
 BOC: Regulatory Limits and next steps
• Liquidity Ratio Liquidity Ratio PEN 2018/19
160.00 155.50

140.00
120.00
100.00 87.11
80.00
60.00
40.00
37.73
20.00
8%
0.00
Jan-19 Dec-18 Nov-18 Oct-18 Sep-18 Aug-18 Jul-18 Jun-18 May-18 Apr-18 Mar-18 Feb-18

Citibank ICBC Santander Limit

Liquidity Ratio USD 2018/19
120.00
97.92
100.00
80.92
80.00

60.00
60.42
40.00

20.00
20%
0.00
Jan-19 Dec-18 Nov-18 Oct-18 Sep-18 Aug-18 Jul-18 Jun-18 May-18 Apr-18 Mar-18 Feb-18

Citibank ICBC Santander Limit

 BOC: Regulatory Limits and next steps
• Liquidity ratio adjusted for borrowed resources
𝐿𝑖𝑞𝑢𝑖𝑑 𝑎𝑠𝑠𝑒𝑡𝑠 − 𝐵𝑜𝑟𝑟𝑜𝑤𝑒𝑑 𝑟𝑒𝑠𝑜𝑢𝑟𝑐𝑒𝑠
𝑅𝐿𝐴𝑟𝑝 =
𝑆h𝑜𝑟𝑡 𝑡𝑒𝑟𝑚 𝑙𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠 − 𝐵𝑜𝑟𝑟𝑜𝑤𝑒𝑑𝑟𝑒𝑠𝑜𝑢𝑟𝑐𝑒𝑠

Indicator Regulatory Limit Internal limit Early warning

Liquidity ratio
adjusted for
borrowed xxxxxxxxx Not less than 13% Not less than 15%
resources - LCY

Liquidity ratio
adjusted for
borrowed xxxxxxxxx Not less than 17% Not less than 20%
resources - LCY
 BOC: Regulatory Limits and next steps
• Liquid Investment Ratio

≥ 5%

Indicator Regulatory Limit Internal limit Early warning

Liquid
Investments Not less than 5% Not less than 6% Not less than 7%
Ratio - LCY
BOC: Regulatory Limits and next steps
• Since we are in the inception stage, we need to build our LCR and
our model to measure the liquidity on a daily basis and thus
comply with the regulator and also have an effective liquidity Risk
management.
• It´s coordinated with the Treasury and the limits will be set up
together.
• Let´s keep working!
Xie Xie!