By Tracy Cabrera
MALATE, Manila — Amid runaway inflation driven by rising prices and the energy crisis, the Bangko Sentral ng Pilipinas (BSP) has moved to adopt measures that will allow banks to maintain releasable capital to support lending during periods of financial and economic stress.
According to the BSP, the new regulation differs from minimum capital requirements, which banks must maintain at all times. Instead, it will be built up during periods of strong credit growth and drawn down during times of stress to sustain lending.
Termed the Positive Neutral Countercyclical Capital Buffer (PN-CCyB), the reform will apply to universal and commercial banks (U/KBs), their subsidiaries and quasi-banks, and digital banks.
BSP Governor Eli Remolona Jr. said the reform is expected to strengthen the country’s financial stability by allowing banks to set aside capital that can be released in bad times to keep credit flowing to households and firms.
To clarify, Remolona explained that the PN-CCyB does not increase overall capital requirements but instead reallocates part of banks’ existing Common Equity Tier 1 (CET1)—the high-quality capital held as a buffer against risks—into a releasable buffer.
“Under current rules, banks must maintain a CET1 ratio 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 said, noting that the reform is consistent with Basel III standards aimed at strengthening bank resilience.
All other capital requirements, including the minimum Tier 1 ratio and the Capital Adequacy Ratio (CAR), will remain unchanged.
The BSP governor explained that the 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 added.
He also noted that the Capital Adequacy Ratio (CAR) measures a bank’s total qualifying capital—both Tier 1 and Tier 2—relative to its risk-weighted assets, reflecting the bank’s capacity to withstand financial shocks and protect depositors, in line with BSP and international prudential standards.
Remolona said the reform is timely amid heightened global risks and uncertainties arising from geopolitical tensions. He added that the banking system is 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 said.
ia/xf
