The experience of Global Financial Crisis (GFC) illustrated that liquidity and funding risks are critical risk factors that can lead to any bank’s insolvency/ failure in case of inadequate risk management practices. In view of resultant changes in the international regulatory landscape, the State Bank of Pakistan intends to adopt the Liquidity Standards as proposed by the Basel Committee on Banking Supervision (BCBS) under its Basel III reforms package.

Accordingly, for measurement of the liquidity risk, following global regulatory standards namely Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR), along with a set of five risk monitoring tools are being implemented. Both of these ratios aim to achieve two separate but complementary objectives and their calculations involve assessing bank’s overall liquidity position through detailed evaluation of assets, liabilities and off-balance sheet activities.

The LCR is a stressed liquidity ratio to be calculated on monthly basis. The objective is to promote the short-term resilience of the liquidity risk profile of banks by ensuring that they preserve enough unencumbered high quality liquidity assets (HQLA) to survive total net cash outflows for the next 30 days calculated under certain assumptions.

The objective of NSFR is to reduce funding risk over a longer time horizon by requiring banks to support their activities with sufficiently stable sources of funding in order to mitigate the risk of future funding problems. NSFR is to be calculated on quarterly basis.

Implementation Schedule:

The transitional arrangements described below are closely in line with the internationally agreed timelines and intended to ensure smooth implementation by allowing sufficient time to banks/ DFIs to make necessary adjustments in their systems/ MIS.

LCR	Trial Reporting	Banks & DFIs	LCR reporting will commence from January 31, 2017 on monthly basis.
	Minimum Requirement	Banks	March 31, 2017 December 31, 2017 December 31, 2018 80% 90% 100% No minimum requirement of LCR is being stipulated for DFIs till further instructions; however, DFIs will report their respective LCR on the prescribed format to SBP on monthly basis
		DFIs
NSFR	Trial Reporting	Banks & DFIs	NSFR reporting on parallel run basis will commence from March 31, 2017 on quarterly basis.
	Minimum Requirement		Effective from December 31, 2017 onwards, NSFR of at least 100% is to be maintained.
Monitoring Tools		Banks & DFIs	To be reported on prescribed formats within fourteen (14) working days effective from March 31, 2017.

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Encl. SBP Basel III Liquidity Instructions