BSP shifts to Basel III operational risk standards
THE Bangko Sentral ng Pilipinas is compelling Philippine banks to set aside more emergency money to protect themselves — and depositors’ funds — from digital threats like hacking, system crashes and scams. This new approach — the new Basel III standard — is akin to a financial safety rulebook. Just as one might keep an emergency savings fund for unexpected car repairs or medical bills, banks are required by law to keep a backup cushion of money called capital framework to handle unexpected disasters.
Photograph courtesy of Bangko Sentral ng Pilipinas
The Bangko Sentral ng Pilipinas (BSP) is tightening its risk-based capital framework for banks, adopting a new Basel III standard that will require lenders to better account for potential losses from operational failures, including cyberattacks, fraud and technology disruptions.
Under BSP Circular No. 1241 dated 9 October 2026, the New Standardized Approach (NSA) will replace existing methods of calculating operational risk capital requirements for universal, commercial and digital banks, as well as their subsidiary banks and quasi-banks.
The new framework aims to strengthen banks’ ability to absorb unexpected losses by making capital requirements more reflective of their operational risk profiles, including their income and historical losses.
“The NSA is more risk-sensitive because it allows capital requirements to better reflect a bank’s operational risk profile by considering its income and historical operational loss experience,” the BSP said.
Basel III is an international regulatory framework developed by the Basel Committee on Banking Supervision in response to the global financial crisis of 2007–2009. Its primary goal is to strengthen bank capital requirements, improve risk management, and prevent bank failures by ensuring financial institutions hold enough high-quality assets to absorb economic shocks.
Operational risk refers to potential losses arising from inadequate or failed internal processes, personnel and systems, as well as external events such as natural calamities. The BSP said the new approach would also encourage banks to strengthen their operational risk management systems and maintain comprehensive historical loss databases.
Full implementation is scheduled to begin with the end-December 2027 reporting period. During the transition, banks must submit capital adequacy ratio reports under both the NSA and existing methodologies, with the latter remaining the basis for determining compliance with minimum capital requirements.