Photo courtesy of Bangko Sentral ng Pilipinas.
Amid runaway inflation due to increasing prices and the energy crisis, the Bangko Sentral ng Pilipinas (BSP) has decided to take steps that would enable banks to maintain releasable capital to support lending during these stressful times of financial and economic pressures.
According to the BSP, the new regulation will be unlike minimum capital requirements, which banks must maintain at all times, and instead, it will be built up during periods of strong credit growth and drawn down in times of stress to sustain lending.
Termed as the Positive Neutral Countercyclical Capital Buffer (PN-CCyB),
the reform initiative will apply to universal and commercial banks (U/KBs), their subsidiaries and quasi-banks and digital banks.
BSP governor Eli Remolona Jr. disclosed that “the reform (is expected) strengthen the country’s financial stability as it enables banks to set aside capital that can be released in bad times to keep credit flowing to households and firms.”
However, to clarify matters, Remolona explained that the PN-CCyB does not increase overall capital requirements but instead will reallocate part of banks’ existing Common Equity Tier 1 (CET1), the high-quality capital that banks maintain as a cushion against risks, into a releasable buffer.
“Under current rules, banks must maintain CET1 of at least six percent of risk-weighted assets (RWA). With the PN-CCyB, 1.5 percent of CET1 will be designated as a releasable buffer, leaving a minimum CET1 requirement of 4.5 percent of RWA,” he noted while citing that the reform is consistent with Basel III standards that aim to make banks more resilient.
In the meantime, all other capital requirements, including the minimum Tier 1 ratio and the Capital Adequacy Ratio, remain unchanged.
The BSP governor spelled out that Tier 1 capital ratio measures a bank’s core capital—such as common equity and disclosed reserves—relative to its risk weighted assets.
“(This) also indicates a bank’s ability to absorb losses while continuing operations, using its highest quality and most loss absorbing capital,” he further explained.
On the other hand, he also cited that the capital adequacy ratio (CAR) measures a bank’s total qualifying capital—both Tier 1 and Tier 2 capital—relative to its risk weighted assets even as it reflects the bank’s capacity to withstand financial shocks and protect depositors, in line with BSP and international prudential standards.
In ending, Remolona noted that the reform is timely amid heightened global risks and uncertainties arising from geopolitical tensions and moreover, the banking system is (now) well-positioned to adopt the measure, with a CET1 ratio of 15.06 percent as of end-December 2025, well above regulatory requirements.
“The Philippines joins countries that have built releasable buffers ahead of potential crises. This enhances our ability to respond swiftly to shocks without increasing the overall capital burden on banks.
“Finally, the new rule under BSP Circular No. 1235, will be implemented in phases. U/KBs, their subsidiaries and quasi-banks are given one year from effectivity to comply, while digital banks are given two years,” he pointed out to conclude.