Moody’s calls BSP bank capital relief ‘credit negative’

Moody’s Ratings has described the Bangko Sentral ng Pilipinas’ (BSP) temporary capital relief for banks as “credit negative,” warning that the measure could reduce transparency by allowing lenders to temporarily exclude unrealized losses on government securities from their regulatory capital.

In a recent advisory, the ratings agency said the relief could mask pressure on banks’ balance sheets stemming from higher interest rates and market volatility, even though it does not immediately weaken their underlying financial strength.

Moody’s noted that excluding paper losses could make banks’ capital ratios appear stronger than they would under the standard regulatory framework.

The BSP introduced the temporary relief through Memorandum No. 2026-027 to help banks and quasi-banks cope with financial market volatility triggered by the Middle East conflict. The measure allows lenders to exclude unrealized losses on peso-denominated government securities from regulatory capital calculations from April 1 to Dec. 31, 2026, after which the standard capital treatment will resume.

S&P Global likewise flagged the BSP’s earlier extension of regulatory relief measures to banks and financial institutions in April—also aimed at mitigating the impact of rising energy costs and supply disruptions caused by geopolitical tensions in the Middle East—as potentially weighing on bank earnings.

Despite its concerns, Moody’s said Philippine banks remain well capitalized. It expects tangible common equity ratios to remain broadly stable this year, supported by solid earnings, while loan-loss provisions and capital buffers remain sufficient to absorb potential shocks.

The agency also recently downgraded its outlook on the Philippine banking system to “negative” from “stable,” warning that weakening economic conditions and rising loan impairments could pressure lenders, even as the US-Iran memorandum of understanding provided only temporary relief to financial markets.