The Bangko Sentral ng Pilipinas (BSP) is intensifying its efforts to protect the Philippine financial system amid evolving economic challenges. However, critics argue the delay in implementing a “positive and neutral” countercyclical capital buffer (CCyB) could leave banks vulnerable to systemic shocks.
The BSP plans to update its framework for resolving troubled banks before fully adopting the CCyB, a mechanism designed to ensure banks maintain sufficient capital during financial stress. This cautious approach has sparked debates about its impact on the financial system’s resilience.
BSP prioritizes bank resolution over CCyB adjustments
As part of its strategy, the BSP is focusing on finalizing its bank resolution framework by mid-2025. The framework includes legislative proposals to establish a dedicated resolution unit, enhance emergency liquidity assistance (ELA), and improve lender-of-last-resort (LOLR) mechanisms.
While the BSP introduced a neutral CCyB set at zero percent in 2018, it has yet to develop a decision framework for raising or lowering the buffer. The Monetary Board can increase the CCyB to a maximum of 2.5 percent, but such adjustments would require a one-year lead time. Critics suggest that this timeline may delay the central bank’s ability to respond to emerging risks effectively.
IMF recommendations highlight vulnerabilities in the property sector
In its recent Article IV consultation, the International Monetary Fund (IMF) praised the BSP’s progress in banking reforms but called for stronger macroprudential measures. The IMF suggested replacing the cap on commercial real estate exposures with a sectoral systemic risk buffer, which could better align banks’ portfolios with potential risks.
Although the BSP acknowledged vulnerabilities in the property sector, it downplayed concerns, citing the effectiveness of existing prudential measures. Nonetheless, the IMF emphasized the need for preemptive action to address vulnerabilities and curb excessive credit growth.
To enhance supervision, the BSP is also working to formalize supervisory colleges for conglomerate oversight and improve stress-testing capabilities. These measures aim to address data gaps and ensure better monitoring of financial risks.
Public reaction: mixed views on BSP’s pace
The BSP’s cautious approach has drawn mixed reactions online:
- @FinanceWatcherPH: “BSP’s delay on the CCyB update is concerning. Economic risks won’t wait for bureaucracy!”
- @BankingInsider: “Great to see BSP addressing bank resolutions first, but quicker action on CCyB is needed.”
- @EconomicHawk: “IMF’s recommendations are valid—sectoral buffers could save us from a real estate crisis.”
- @InvestorAlert: “Delays in CCyB raise questions about the BSP’s readiness to handle financial shocks.”
- @PolicySupporter: “Building a strong resolution framework is the right first step before major CCyB changes.”
- @CriticalEyePH: “Hope the BSP’s prudence doesn’t backfire when systemic risks become real threats.”
Jaja has a degree in journalism and took classes in international law and business communication. Her career spans roles at prominent international media outlets, including International Business Times, Celebeat and Delightful Philippines. As a news editor, Jaja covered a wide range of beats, including legal, business, economy, cryptocurrency, personal finance, gaming, technology, and entertainment.