The Philippine central bank's monetary board approved the adoption of a countercyclical capital buffer for the country's universal and commercial banks as part of its efforts to monitor and mitigate systemic risks.
Banks will use their common equity Tier 1 capital to comply with the requirement, according to a Dec. 13 release by Bangko Sentral ng Pilipinas.
The buffer is currently set at zero percent, in line with global practice. It also reflects the central bank's view that ongoing credit expansion is not an imminent risk that requires banks to raise their capital positions.
The BSP will continuously review the capital buffer. Banks will be given a 12-month period to comply with the benchmark should it be raised, though any change takes effect immediately when the buffer is reduced.
"The [countercyclical capital buffer] is part of our macroprudential measures that can help guide the path of future credit growth but is flexible enough to potentially provide immediate effects to address market tightness," said central bank Governor Nestor Espenilla Jr.