In parallel with the capital standards under Basel III Framework, prudential requirements for the Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR) are set for the banking sector.

 

The purpose of the liquidity coverage ratio is for the commercial bank to own liquid assets that will be sufficient to cover the total net cash outflow in times of financial stress. This requires the bank to maintain an adequate liquidity supply that will allow the bank to cope with the expected difference between the inflow and outflow of liquid funds under a 30-day stress.

 

The purpose of the Net Stable Funding Ratio is to ensure the stability of the funding attracted by the banking sector. This prudential ratio requires that the structure of the bank's liabilities should be adequate to its on- and off-balance-sheet activities.