BSP Sets Out Sustainable Finance Strategy and Rules on Borrower Limits

The amendments to Single Borrower’s Limit rules include the credit risk transfer arrangements and the expansion in the definition of capital, which is used for determining compliance with varied prudential limits, including the Single Borrower's Limit. The amended rules provide minimum operational requirements for a credit risk transfer arrangement to be considered as effective. These are patterned after the credit risk mitigation requirements of the Basel III capital standards, which ensure that a particular credit risk transfer arrangement is binding on all parties, is legally enforceable in all relevant jurisdictions, and is direct, explicit, irrevocable, and unconditional, among others. BSP will dispense with the prior BSP approval requirement on every credit transaction covered by a credit risk transfer arrangement for these to be excluded from exposures that are subject to Single Borrower's Limit. The framework also includes the use of 30% Single Borrower Limit by all banks. The new rules take effect on July 01, 2023 to provide banks with reasonable time to make the necessary adjustments to their policies and procedures to ensure a smooth transition to the operational requirements for employing credit risk transfer arrangements. Banks shall continue to use the existing Single Borrower Limit framework as of end-December 2022 during the transition period from January 01, 2023 to June 30, 2023 to minimize disruption in the lending operations of banks. 

Another development is the publication of the Sustainable Central Banking strategy, which outlines the following 11 action points integrating sustainability principles in its key operations and functions:

• Conduct a comprehensive vulnerability assessment of the Philippine economy and financial system, accounting for physical and transition risks and other environmental risks
• Enhance mandatory disclosures of climate-related financial risks by all banks in the Philippines, building on the Task Force on Climate-related Financial Disclosures (TCFD) recommendations
• Issue guidance on mandatory climate stress testing for banks
• Integrate environmental and social risks into prudential practices
• Incorporate macroeconomic effects of climate change into monetary policy analysis
• Consider the incentive schemes for the promotion of green lending by banks
• Include sustainability considerations in portfolio management and risk management of BSP and sign the UN Principles for Responsible Investment (UN PRI)
• Develop a task force for inclusive green finance
• Include climate-related financial disclosures in the Annual Report of BSP
• Adopt sustainable practices for own facilities and operations of BSP
• Roll out a capacity-building program for all staff in relevant areas

As part of its strategy BSP is, in the near future, expected to issue regulations covering the following areas:

• Conduct of climate risk stress testing by banks
• Amendments to Disclosure Requirements under Circular No. 1085 on Sustainable Finance Framework
• Enhancements of prudential reports for data collection and surveillance analysis
• Incentivized lending or financing of green or sustainable projects or activities
• Development of sustainable finance taxonomy

Related Links

• Regulations Related to Single Borrower’s Limit
• Press Release on Sustainability Strategy
• Comprehensive Information on Sustainability Strategy
• Sustainable Central Banking Strategy (PDF)