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BSP Unveils Initiatives to Boost Sustainable Finance in the Philippines

The Bangko Sentral ng Pilipinas (BSP) has given the green light to a set of temporary measures aimed at encouraging banks to extend loans or finance green and sustainable projects. These measures also cover transition financing for decarbonisation.

Specifically, they involve providing banks with additional lending capacity and reducing the reserve requirement rate on sustainable bonds issued by banks.

These measures are part of the BSP’s 11-point Sustainable Central Banking Strategy, which seeks to promote sustainable finance and contribute to the country’s climate goals and sustainable development objectives.

Under these approved measures, banks can now extend loans for eligible green or sustainable projects with a 15 percent top-up to the Single Borrower’s Limit (SBL).

These projects must align with the principles or eligible project categories outlined in various sustainability frameworks, ensuring they comply with Philippines’ environmental laws and regulations.

In terms of risk management, banks must adhere to credit risk management guidelines and implement controls to safeguard their financial interests, such as the use of insurance or negative pledge covenants. However, existing credit ceilings and separate SBLs for project finance remain unaffected by these incentives.

Meanwhile, the reserve requirement rate for green, social, sustainability, or other sustainable bonds issued by banks will gradually decrease to zero percent (0%) from the current three percent (3%).

This reduction will occur over a two-year period, with a 200-basis point reduction in the first year and an additional 100-basis point reduction in the second year. These bond issuances must comply with applicable regulations and disclosure requirements, and issuing banks must avoid greenwashing.

BSP asserted that this gradual reduction in the reserve requirement rate is not indicative of a change in the monetary policy stance but is intended solely as a tool to promote sustainable finance.

Both measures will be available to banks for two years from the policy’s effective date and may be subject to further review as circumstances warrant.

According to a survey conducted by the BSP, as of end-June 2022, 75 percent of respondent universal and commercial banks had financed or approved loans totaling PHP 830 billion (approximately US$ 14 million) in support of green or sustainable projects.

These projects accounted for approximately 7.0 percent of the Philippine banking system’s total loan portfolio.

Eli Remolona

“As a sustainable finance champion, the BSP will continue to play an active, enabling role in fostering the transition towards a sustainable economy.

We will identify and create appropriate incentives that are within our mandates empowering the banking system to steer capital flows toward growing green or sustainable investments and accelerate the development of solutions addressing just transition and adaptation-related challenges.”

said BSP Governor Eli M. Remolona.

Featured image credit: Edited from Freepik