Banks get temporary capital relief from BSP

The Bangko Sentral ng Pilipinas granted temporary regulatory relief to banks and quasi-banks to help cushion the impact of market volatility linked to the Middle East conflict.

The relief was announced in a BSP press release dated June 23, 2026, and issued under BSP Memorandum No. 2026-027.

Under the memorandum, banks and quasi-banks may temporarily exclude certain unrealized losses, also known as paper losses, from the computation of their regulatory capital.

The covered paper losses refer to those on peso government securities resulting from market volatility.

The time-bound measure is intended to prevent temporary market movements from unduly weakening the reported capital strength of banks and quasi-banks.

Unrealized losses are declines in the market value of securities that have not been sold but whose change in value must be reflected in banks’ regulatory capital.

The BSP said these losses are deducted from Common Equity Tier 1, the highest-quality capital that a bank holds to absorb losses and a key component in computing the Capital Adequacy Ratio.

Banks and quasi-banks that avail themselves of the relief must continue to disclose all unrealized losses in financial reports submitted to the BSP.

They must also continue to disclose the losses in their financial statements.

The measure is effective from April 1 to Dec. 31, 2026.

Beginning January 2027, the usual capital rules will again apply.

The BSP’s move comes as geopolitical risks have added pressure to global and domestic financial markets.

Middle East tensions have affected oil prices, inflation expectations, and bond markets, with Reuters reporting that investors have been weighing the conflict’s implications for energy prices and yields.

In the Philippines, peso government securities have also reflected the volatility, with market reports citing higher yields as investors responded to renewed Middle East risks.

For banks, rising yields can reduce the market value of bond holdings, creating paper losses even if the securities are not sold.

The BSP relief allows regulated institutions to avoid having those temporary valuation declines immediately weigh on capital ratios, while still requiring full disclosure to regulators and financial statement users.

The measure is designed as a temporary buffer rather than a permanent exemption from capital rules.