In an effort to boost sustainable and green financing in the Philippines, the Bangko Sentral ng Pilipinas (BSP) intends to introduce more attractive incentives. These include raising the single borrower’s limit (SBL) and eliminating the reserve requirement rate.
To promote green and sustainable projects, including the transition to decarbonization, BSP Governor Felipe Medalla revealed that the BSP is considering granting an additional 15 percent SBL on loans, credit accommodation, and guarantees. Meanwhile, the reserve requirement rate for sustainable bonds issued by banks may be reduced to zero percent.
These proposed incentives are outlined in a draft circular that aims to amend the regulations on credit exposure limits and required reserves for single borrowers, as stated in the Manual of Regulations for Banks (MORB).
The goal of these measures, according to the BSP chief, is to support the financing of projects that contribute to the Philippine government’s climate commitments and sustainable development goals, as outlined in the Philippine Development Plan and Nationally Determined Contributions.
Under the proposal, the regulator would provide an extra 15 percent SBL for loans, credit accommodation, and guarantees for green or sustainable projects, including those related to decarbonization. These projects should align with various frameworks such as the national government’s Sustainable Finance Framework, Strategic Investment Priority Plan, Philippine Sustainable Finance Guiding Principles, ASEAN Taxonomy for Sustainable Finance, and forthcoming Philippine Sustainable Finance Taxonomy Guidelines.
Moreover, the lending bank must ensure that the project or activity in question complies with Philippine laws and environmental regulations. It should also have standard prudential controls in place to protect the interests of creditors, such as negative pledge covenants or share liens. Additionally, the bank should require the borrower to assign all proceeds from insurance policies related to the project as collateral for the loan or credit facility.
To assess capital adequacy and risk concentration, banks are advised to consider the credit risk arising from exposures to all borrowers involved in eligible green or sustainable projects within their overall risk profile and operating environment.
Starting from January 2031, any new loans, credit accommodations, or guarantees must not exceed the prescribed 25 percent single borrower’s limit. However, existing loans, credit accommodations, or guarantees granted before the end of December 2030 using the additional 15 percent SBL can be maintained until maturity.
Furthermore, the BSP plans to reduce the required reserves for universal and commercial banks, digital banks, and thrift banks from three percent to zero for deposits and deposit substitute liabilities related to green, social, sustainability, and other sustainable bonds until the end of 2025.
The news about the Bangko Sentral ng Pilipinas (BSP) introducing incentives to promote sustainable and green financing in the Philippines is relevant to stock traders and investors in the Philippine Stock Exchange (PSE) for several reasons:
- Investment Opportunities: The incentives offered by the BSP can lead to increased investment opportunities in sustainable and green projects. Stock traders and investors can capitalize on these opportunities by identifying companies involved in such projects and potentially benefiting from their growth and profitability.
- Sector Performance: With the BSP’s focus on sustainable and green financing, sectors related to renewable energy, environmental conservation, and sustainable development may experience positive growth and performance. Stock traders and investors can monitor and analyze the performance of these sectors to make informed investment decisions.
- Regulatory Environment: The BSP’s initiatives signal the government’s commitment to promoting sustainability and addressing climate change. This regulatory support can have a positive impact on companies operating in the sustainable and green sectors, potentially attracting more investors and improving market sentiment.
- Risk Management: The BSP’s emphasis on compliance with environmental laws and regulations can help mitigate certain risks associated with unsustainable practices. Stock traders and investors may consider companies that demonstrate strong environmental compliance and risk management practices as more attractive investment options.
- Market Sentiment: The BSP’s efforts to promote sustainable financing can influence market sentiment, particularly among socially responsible investors. Companies that align with sustainable practices may gain favor among these investors, potentially leading to increased demand for their stocks and positively impacting market dynamics.
It’s important for stock traders and investors to stay informed about regulatory developments and market trends related to sustainable and green financing in order to identify potential investment opportunities and manage risks effectively in the Philippine Stock Exchange.
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