MANILA, Philippines – Philippine banks are getting temporary relief from the Bangko Sentral ng Pilipinas (BSP), a move meant to keep market volatility from squeezing capital ratios. But does this actually invite more risks to creep into an already stressed banking system?
Under BSP Memorandum No. M-2026-027, banks and quasi-banks may temporarily exclude certain unrealized losses, also known as paper losses, on peso government securities from the computation of their regulatory capital.
Government securities are debt papers issued by the government. Banks buy them because they are generally considered safe assets. But like other bonds, their market prices can still rise or fall.
The BSP relief applies to government securities booked under “fair value through other comprehensive income,” or FVOCI. These are securities that banks have not sold, but whose changing market value still affects the bank’s capital.
The measure is meant to cushion the impact of the Middle East conflict, which has rattled financial markets, pushed up yields, and consequently lowered the value of some bond holdings. Yield refers to the return investors demand from a bond. When yields rise, bond prices usually fall.
