Philippine Central Bank Allows Banks to Exclude Paper Losses From Capital Calculations Through End of 2026

The Bangko Sentral ng Pilipinas issued Memorandum No. M-2026-027 on June 26 allowing banks and quasi-banks to exclude unrealized losses on peso government securities booked under fair value through other comprehensive income from regulatory capital calculations. The relief applies from April 1 through December 31, 2026.

Standard capital rules resume on January 1, 2027. The central bank said the measure aims to prevent transitory market movements from unduly affecting reported capital strength. Government securities made up about 30 percent of Philippine banking system assets as of March 2026, with roughly 40 percent classified as FVOCI, according to Moody’s Ratings.

Unrealized losses on those holdings ranged from 1.2 percent to 4.3 percent of common equity tier 1 capital in the first quarter, while cumulative unrealized losses reached 1.3 percent to 7.5 percent of CET1 capital. The central bank stated that Philippine banks remain well positioned to withstand potential shocks, supported by ample liquidity, adequate capital buffers, and manageable asset quality.

Banks must still recognize and report the losses in their financial statements.

Former BSP deputy governor Diwa Guinigundo wrote that the policy raises legitimate questions about moral hazard. He said regulatory relief inevitably creates some degree of moral hazard and that prolonged or repeated relief could delay recognition of problem assets and weaken market discipline.

Moody’s Ratings called the relief credit negative because it shields capital ratios from the impact of higher bond yields.