IMF urges BSP to tighten banking policies, preempt risks

MANILA, Philippines — The International Monetary Fund (IMF) has urged the Bangko Sentral ng Pilipinas (BSP) to adopt proactive macroprudential measures to prepare and mitigate for any potential risks in the financial sector.

In its latest assessment, the IMF said there is a need for vigilance as monetary easing and a rebound in investment activity are likely to spur credit demand.

“The BSP could separately move toward a positive neutral level for the countercyclical capital buffer and further develop a CCyB decision framework in parallel,” the IMF said.

The CCyB is a bank capital buffer that can be raised or lowered by jurisdictions depending on the level of risk in the financial system.

It is a macroprudential tool designed to ensure that banks build up additional capital during periods of excessive credit growth, which can be drawn down in times of financial stress to maintain the flow of credit to the economy.

“Gradual phase-in of higher capital requirements during the expansion phase of the financial cycle could mitigate excessive credit growth and strengthen banks’ capacity to absorb losses in the event of financial stress,” the IMF said.

Moreover, the IMF said that replacing the cap on commercial real estate exposures with a sectoral systemic risk buffer could incentivize banks to align their loan portfolios with systemic risk considerations.

“The BSP should be ready to adjust macroprudential policy in line with developments in the financial cycle to preempt the build-up of vulnerabilities,” the multilateral lender added.