Central bank eyes more incentives in sustainability financing push

THE BANGKO SENTRAL ng Pilipinas (BSP) is looking to provide more regulatory incentives to encourage green and sustainability financing among banks.

In its latest Sustainability Report, the central bank said it will “explore other viable regulatory incentives to promote financing for adaptation and transition, with due consideration to moral hazard concerns and legality.”

“Such incentives may include relaxing certain regulations on BSP’s normal credit operations for refinanced green loans of banks,” it added.

The central bank last year approved the temporary increase in the single borrower’s limit of banks by 15% to allow them to extend loans or finance investments for eligible green or sustainable projects or activities, including transitional activities.

It also approved the gradual reduction of the reserve requirement rate (RRR) against sustainable bonds issued by banks. This year, the RRR is set at 1% for new and existing sustainable bond issuances.

“Moving forward, the BSP will be issuing guidelines for sustainability-themed unit investment trust funds (UITFs) by trust entities (TEs), which could help in broadening the range of sustainable finance instruments for retail and institutional investors,” it said.

The report showed that in the first half of 2024, banks’ peso-denominated sustainable bond issuances stood at P236.5 billion. Meanwhile, foreign-currency sustainable bonds amounted to $1.6 billion.

Total reserves generated from sustainable bonds issued by banks was recorded at P1 billion as of end-March.

“With the regulatory incentive provided by BSP, an estimate of P2 billion has been freed up to the system, which may then be reallocated to finance eligible and sustainable activities,” it added.

The central bank sees the issuance of sustainable bonds to rise further in the coming years. Data from a BSP survey showed that more respondent banks (90.3%) are planning to finance sustainable activities from 2024 to 2025.

Meanwhile, the BSP is also seeking to improve reporting standards to better monitor climate risks.

“The BSP will also enhance prudential reports that could facilitate identification and collection of relevant data and surveillance of emerging risks/trends arising from climate change and other environmental and social factors,” it said.

“This includes enhancement of the branch-level prudential reports to generate granular data that could be used to understand the loan profile of banks per province and region as well as assess the vulnerability of the banking system to climate physical risks and natural hazards.”

Under the BSP’s inclusive sustainability agenda, the central bank aims to promote a “climate-resilient financial system that facilitates inclusive adaptation and just transition,” as climate change and nature loss may pose risks to financial and price stability, it said.

“The country’s response to these risks necessitates mobilizing sustainable finance which the BSP can strategically support in line with its mandates,” the central bank said.

“Financial institutions may incur destabilizing losses in terms of defaults and impaired asset values from exposure to sectors/industries vulnerable to physical and transition risks. Such losses could constrain their ability to provide credit to the real economy.” — Luisa Maria Jacinta C. Jocson