By Fil C. Sionil
Despite the signing of the memorandum of understanding between the US and Iran before the week ended, the Middle East remains in a state of high volatility with widespread conflicts and severe humanitarian crises across multiple fronts.
This was the justification the Bangko Sentral ng Pilipinas (BSP) cited in its decision to provide banks and quasi banks regulatory relief measure on net unrealized losses on peso government securities under the fair value through other comprehensive income (FVOCI).
Bankero obtained a copy of Memorandum No. M-2026-027 signed Friday, June 19, 2026 by BSP Governor Eli Remolona, which states, among others: “This relief is afforded in view of the impact of the ME conflict on market yields and asset valuations.”
Simply put: the BSP allowed banks and quasi-banks the flexibility to transfer their trading portfolio to hold-to-collect, giving them the temporary respite to mark-to-market their trading assets, thus shielding them from the negative effect of high interest rate volatility.
From what I gathered, senior bank executives are apprehensive and reluctant, describing the flexibility as an apparent favored relief, reportedly, for two privately owned banks and a government financial institution (GFI).
“This only encourages bad behaviour with the BSP taking up the cudgels for those who invested in riskier assets.” Likewise, the measure will set a “precedent” that every time there is a crisis, the market will request regulatory relief from the BSP.
Interestingly, the monetary authorities appear to be very accommodative.
That’s right, it’s not the usual “effective immediately” but rather “retroactive,” with the relief coverage spanning nine months, starting April up until the end of December this year.
While at the onset of January 2027, banks will revert back to reporting nadjusted Common Equity Tier 1 (CET1 and their Capital Adequacy Ratio (CAR) without the relief on unrealized mark-to-market losses on FVOCI peso GS in the computation of its CAR and CETI ratio.
Of course, there are certain conditionalities that come with the relief. For one, banks wanting to avail of the regulatory relief have until end of this month to “notify” the BSP.
And strict impositions on reporting comes with the availment.
Banks are required to submit reports showing in detail the computation of their financial strength as indicated by the CET1 and their CAR under two different scenarios. The first scenario should indicate the bank’s CET1 and CAR sans the relief. While scenario 2 shows the CET1 and CAR after regulatory relief availment.
Interestingly, the memo forewarned availing banks that they may face “limitations” in participating in select BSP liquidity.
From what I’ve heard inside the inviolably private Monetary Board room, this provision no. 9 of the memo was “unnecessary” but was “included” in exchange for the original provision “preventing availing banks and quasi-banks to declare cash dividends to their shareholders.”
I learned that one particular monetary board member, who holds office within the sprawling BSP complex, argued for the removal of the original provision because it could negatively impact the revenue take of the already dire national coffers.
A GFI with a universal banking license is believed to be one of the three banks that will be lining up to avail of the regulatory relief. Republic Act 7656, otherwise known as the Dividend Law, mandates GFIs and government-owned and controlled corporations to remit at least 50 percent of their net earnings as dividends to the national government.
How can a bank, on one hand, avail of the regulatory relief in order to keep its CET1 and CAR within the required level, and at the same time remit cash dividends that will erode its capital?
It’s somewhat of oxymoron.
Talk back to me at sionil731@gmail.com
