BSP sweetens perks for green lending
The Bangko Sentral ng Pilipinas (BSP) has approved additional temporary measures to incentivize banks to extend loans or finance investments for green or sustainable projects or activities, including transition financing for decarbonization.
The central bank approved the measures in the form of extra lending capability and reduced reserve requirement rate on sustainable bonds issued by banks to scale up sustainable financing in the country.
Last December, BSP Governor Eli Remolona Jr. issued Circular No. 1185 granting additional single borrower’s limit (SBL) for financing eligible projects and zero reserve requirement rate against sustainable bonds.
“As a sustainable finance champion, the BSP will continue to play an active, enabling role in fostering the transition towards a sustainable economy. We will identify and create appropriate incentives that are within our mandates empowering the banking system to steer capital flows toward growing green or sustainable investments and accelerate the development of solutions addressing just transition and adaptation-related challenges,” Remolona said.
The introduction of incentives forms part of the suite of initiatives under the BSP’s 11-point Sustainable Central Banking Strategy to mainstream sustainable finance as well as support the achievement of the country’s climate commitments and sustainable development goals.
Under the approved measures, banks are allowed to extend loans for eligible green or sustainable projects or activities with a top-up of 15 percent SBL.
The eligible projects or activities must meet any of the principles or eligible categories of projects as laid out in the 2022 Strategic Investment Priority Plan on Green Ecosystems, Health and Food Security, the Republic of the Philippines Sustainable Finance Framework, the Philippine Sustainable Finance Guiding Principles, the ASEAN Taxonomy for Sustainable Finance;, and the Philippine Sustainable Finance Taxonomy Guidelines.
According to the BSP, the underlying project or activity should be legal and compliant with any Philippine environmental laws and regulations.
It explained that an activity or prohibited activity could still be considered an eligible exposure if the same is an enabler of climate change mitigation.
The BSP said banks are expected to adhere to the credit risk management guidelines, including the management of credit concentration risk, as well as adopt controls to protect their financial interest like the use of insurance or negative pledge covenant.
However, it explained that existing credit ceilings to related parties of banks or separate SBL for project finance are not covered by the regulatory incentive.
Meanwhile, BSP said the applicable reserve requirement rate for green, social, sustainability or other sustainable bonds issued by banks shall now be gradually reduced to zero from the current three percent.
According to the BSP, the issuances should comply with the appropriate regulations of the Securities and Exchange Commission and/or other relevant regional or international standards acceptable to the market including but not limited to the issuances of the International Capital Markets Association or endorsement of the ASEAN Capital Markets Forum.
The issuing banks should also comply with the disclosure requirements in the Sustainable Finance Framework and not engage in greenwashing or spending more time and money marketing itself as environmentally friendly than on actually minimizing its environmental impact.
The gradual and calibrated reduction in the reserve requirement rate for sustainable bonds does not constitute a change in the monetary policy stance but is envisioned solely to be a tool to promote sustainable finance.
Both measures shall be available to banks for a period of two years from the effectivity of the policy and may be further reviewed as warranted by circumstances.
Based on an ad hoc survey conducted by the BSP, 75 percent of respondent universal and commercial banks have financed or approved loans supporting green or sustainable projects totaling P830 billion and $14 million as of endJune 2022, representing approximately seven percent of the Philippine banking system’s total loan portfolio.
The top five green activities or projects supported by these banks are renewable energy, sustainable water and wastewater management, energy efficiency and green buildings.