BSP eases bank credit risk transfer deal rules

THE BANGKO SENTRAL ng Pilipinas (BSP) is now allowing guarantees issued between a bank’s head office and its branches or between branches located in different jurisdictions to be used for credit risk transfer arrangements.

BSP Circular No. 1233 Series of 2026 signed by BSP Governor Eli M. Remolona, Jr. on May 18 said banks can now obtain guarantees for credit risk transfers internally. Previously, guarantees were only allowed to be provided by eligible third parties.

These may be in the form of intrabank standby letters of credit, demand guarantees or counter-guarantees, the central bank said.

Credit risk transfer arrangements allow banks to pass on exposure risks associated with its loans or other credit accommodations for their protection, based on the Manual of Regulations for Banks.

However, the BSP said that while banks can now tap internal arrangements to manage lending risks, there will be a strict limit to ensure they do not over-rely on them.

Under the new rules, the total value of the intrabank guarantees cannot exceed 100% of the bank’s total existing loan portfolio from the previous month.

“For this purpose, the total credit risk-weighted amount shall be computed by applying the risk weight of the head office or branch located in different jurisdictions, which issued the intrabank guarantees, to the (i) banking book exposures, and/or (ii) credit equivalent amount of off-balance sheet exposures, both to the extent covered by the said guarantee, following the risk weights provided in Part V of Appendix 59 or Part lll of Appendix 62, as applicable,” the central bank said in the circular.

The BSP also said that the total loan portfolio to be used as reference for the guarantees must include interbank loans receivable, loans and receivables from reverse repurchase agreements with the central bank or other financial institutions, as well as the bank’s gross allowance for credit losses.

For guarantees, banks must apply the risk weight of the guarantor to the guaranteed portion of the credit exposure, the central bank said. On the other hand, lenders must apply the risk weight of the protection seller to the protected portion of the exposure being hedged for credit derivatives. — Katherine K. Chan