‘BSP regulatory relief credit negative for banks’

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP)’s temporary regulatory relief for banks may help cushion capital ratios from market volatility, but Moody’s Ratings warned that the move is credit negative as it reflects rising pressure from higher bond yields and unrealized losses on investment securities. In a report, Moody’s said the BSP’s relief measure allows banks to exclude valuation losses on peso-denominated government securities measured at fair value through other comprehensive income from the computation of capital.

“The move is credit negative because it aims to protect banks’ regulatory common equity tier 1 (CET1) capital ratios from significant decreases amid higher bond yields driven by soaring inflation,” Moody’s said.

The relief came after the BSP on June 19 allowed banks and quasi-banks to temporarily exclude certain unrealized losses on peso government securities from the computation of regulatory capital. The measure is effective from April 1 to Dec. 31 this year, after which the usual capital rules will resume beginning January 2027.

Moody’s said Philippine banks’ CET1 ratios declined in the first quarter as unrealized losses on investment securities mounted following an increase in government bond yields.

The debt watcher said the regulatory relief was introduced following the impact of the Middle East conflict and the BSP’s rate hikes on bond yields.

The yield on the 10-year government bond rose to a high of 7.8 percent in May before easing to around seven percent in June. This remained above the six percent average recorded in 2025, Moody’s said.

Higher bond yields have weighed on banks’ capital ratios because Philippine lenders hold a large volume of long-duration government securities.

Moody’s said government securities accounted for around 30 percent of banks’ total assets as of March, among the highest in Asia. About 40 percent of these securities were held at fair value through other comprehensive income, while the rest were booked under held-to-collect portfolios that are not marked to market.

As yields rose, banks recorded unrealized losses that were deducted from CET1 ratios.

“The increase in government bond yields has pressured Philippine banks’ capital ratios because they hold a large number of long-duration government securities,” Moody’s said.

The credit rater said unrealized fair value through other comprehensive income losses ranged from 1.2 percent to 4.3 percent of CET1 capital in the first quarter.

The overall cumulative strain on CET1 capital was larger, ranging from 1.3 percent to 7.5 percent.

Among the banks covered by Moody’s, Security Bank Corp. recorded the biggest cumulative unrealized loss relative to CET1 capital at -7.5 percent as of March, widening from -3.5 percent at end-2025.

This was followed by Bank of the Philippine Islands at -5.4 percent from -2.3 percent, Metropolitan Bank & Trust Co. at 4.7 percent from 0.4 percent, China Banking Corp. at 4.2 percent from 0.5 percent and BDO Unibank Inc. at 3.8 percent from 1.2 percent.

Rizal Commercial Banking Corp. posted a cumulative unrealized loss equivalent to 2.9 percent of CET1 capital, slightly better than three percent at end-2025. Union Bank of the Philippines registered 2.2 percent from 1.1 percent, while Philippine National Bank recorded 1.3 percent from a gain of 0.6 percent at the end of last year.

Moody’s said Metrobank and Security Bank underperformed in the first quarter because they had the largest proportion of fair value through other comprehensive income securities relative to total assets.

Despite the decline in regulatory capital ratios, Moody’s said Philippine banks are still expected to remain well capitalized.

The comment followed Moody’s decision on June 19 to revise its outlook on the Philippine banking system to negative from stable, reflecting a weaker operating environment and higher asset risks.