The Philippine central bank’s decision to let local lenders omit valuation losses on peso-denominated sovereign debt from their regulatory capital calculations could inadvertently encourage aggressive risk-taking, according to a warning from CreditSights. The Bangko Sentral ng Pilipinas (BSP) introduced the temporary regulatory forbearance in June 2026, permitting banks and quasi-banks to exclude these paper losses when determining their required regulatory capital buffers. Financial institutions are still required to report their actual, unrealized losses directly to the central bank in their regular financial disclosures.
While CreditSights acknowledged that the policy offers immediate balance sheet relief, particularly for exposed lenders like RCBC and Security Bank, the firm expressed reservations about its broader systemic implications. Over the long term, CreditSights views the intervention as counterproductive, cautioning that establishing such a precedent could compromise market discipline by motivating banks to take on excessive maturity mismatches or heightened market risk.
Consequently, CreditSights maintained its “underperform” investment rating on the Philippine banking sector under its coverage, which encompasses BDO, BPI, Metrobank, PNB, Security Bank, and RCBC. The research firm interpreted the central bank’s rule modification as a distinct indication that the BSP expects interest rates to remain elevated for a prolonged period, with additional monetary tightening expected on the horizon.
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