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MANILA, Philippines – The move of the Bangko Sentral ng Pilipinas (BSP) to let banks exclude government securities-related losses from capital calculations is “credit negative,” Moody’s Ratings said, as the measure could mask some of the pressure that rising interest rates and inflation have placed on lenders’ balance sheets.
In a note dated June 24, Moody’s said the measure was designed to shield banks’ Common Equity Tier 1 (CET1) ratios from declines caused by unrealized losses on government securities, whose market values have fallen as bond yields have surged since the Middle East war.
READ: BSP extends relief to crisis-hit banks
The pressure is seen as significant because Philippine banks are heavily invested in government debt. Government securities accounted for about 30 percent of banking system assets as of March—among the highest shares in Asia—while roughly 40 percent of those holdings were classified as fair value through other comprehensive income.
