BSP says climate risks can be mitigated by regulatory action

CENTRAL BANK regulatory action can cushion the impact of climate risks on the financial system, Bangko Sentral ng Pilipinas (BSP) Governor Eli M. Remolona said.

He cited the potential of measures such as designating systemically important banks or assigning appropriate capital levels for risks taken.

“These tools can be harnessed to push for greater climate adaptation,” Mr. Remolona was quoted saying in a speech earlier this month.

The governor called climate risk the “ultimate systemic risk.”

Meanwhile, the BSP called on the private sector to ramp up its support for sustainability and climate change-related projects.

“We need to encourage innovative financing mechanisms that allow projects to access international capital. This goes hand in hand with our efforts to develop our domestic capital market, to provide alternative sources of financing,” BSP Assistant Governor Pia Bernadette Roman Tayag said.

Ms. Tayag noted the need to boost sustainability efforts, especially for vulnerable parts of the economy such as small businesses.

Meanwhile, BSP Assistant Governor Lyn I. Javier said that the central bank works closely with its supervised institutions to enhance risk management.

Capacity-building is also crucial, Ms. Javier added.

“This is where development partners, such as the Asian Development Bank (ADB), come in because they can bring in experts that could capacitate the industry.”

The BSP has said it is considering more incentives to encourage banks to finance green and sustainability projects.

These include relaxing regulations on normal credit operations for refinanced green loans, as well as setting rules for sustainability-themed unit investment trusts, among others.

Last year, the BSP approved the temporary increase to 15% in banks’ single-borrower limit to allow them to extend loans or finance investments for eligible green or sustainable projects, including transitional activities.

It also approved the gradual reduction of the reserve requirement ratio (RRR) on sustainable bonds issued by banks. This year, the RRR is set at 1% for new and existing sustainable bond issuances. — Luisa Maria Jacinta C. Jocson