BSP tightens bank risk rules, sets full rollout in 2027

The Bangko Sentral ng Pilipinas (BSP) is tightening operational risk capital requirements for major banks, adopting a new international framework that will make capital requirements more responsive to banks’ income and historical losses from risks such as cyberattacks, fraud, and technology failures.

Under BSP Circular No. 1241, issued on October 9, 2026, the Basel III New Standardized Approach (NSA) will replace existing methods for calculating operational risk capital requirements for universal, commercial and digital banks, including their subsidiary banks and quasi-banks.

The move aims to strengthen banks’ capacity to absorb unexpected losses while aligning the Philippines’ risk-based capital adequacy framework with international standards.

Operational risk covers losses arising from failed internal processes, human error, system breakdowns, and external events, including natural disasters. For businesses and financial markets, stronger bank resilience can help protect the stability of lending and other financial services during periods of disruption.

The NSA adopts a more risk-sensitive approach by factoring in a bank’s income and historical operational losses, subject to requirements for maintaining reliable loss data. It is also designed to encourage banks to improve risk management systems and build more robust historical loss databases.

Stand-alone thrift, rural and cooperative banks will continue using the modified Basic Indicator Approach under the Basel 1.5 framework.

To ease the transition, covered banks will undergo a monitoring period and submit capital adequacy ratio (CAR) reports using both the new approach and existing methodologies. Existing methods will remain the basis for determining compliance with minimum capital requirements during this period.

The BSP will issue separate guidelines on the start of the monitoring period and parallel reporting procedures.

Full implementation of the NSA will begin with the end-December 2027 reporting period. Banks that demonstrate sufficient readiness may adopt the framework earlier during the monitoring period, subject to BSP notification and post-verification requirements.

The CAR measures a bank’s eligible regulatory capital against its risk-weighted assets and serves as a key indicator of its ability to absorb losses.

For the banking industry, the shift means operational risk management and reliable loss data will become increasingly important in determining capital requirements under the new framework.