UMVA has learned that the Bangko Sentral ng Pilipinas has just ripped open a new frontier for banks, permitting guarantees issued between a head office and its branches—or even across different jurisdictions—to be harnessed for credit‑risk transfers.
Signed on May 18 by the central bank’s governor, the fresh circular shatters the old rule that only eligible third parties could provide such guarantees, now allowing banks to wield intrabank standby letters of credit, demand guarantees, or counter‑guarantees as internal shields.
This bold shift empowers banks to offload the exposure tied to their loan books, turning a tangled web of risk into a manageable, internal safety net, as outlined in the Manual of Regulations for Banks.
Yet the regulator draws a hard line: the total value of intrabank guarantees may never surpass 100 % of the institution’s loan portfolio from the prior month, a ceiling designed to prevent over‑reliance on internal crutches.
To calculate this limit, banks must apply the risk weight of the guaranteeing head office or foreign branch to both on‑balance‑sheet banking book exposures and the credit‑equivalent amount of off‑balance‑sheet items covered by the guarantee, using the prescribed risk‑weight tables.
The reference pool for this calculation isn’t just ordinary loans—it must also encompass interbank receivables, reverse‑repo loans with the central bank or other financial firms, and the gross allowance for credit losses, ensuring a comprehensive view of the institution’s risk horizon.
When a guarantee is in play, the bank applies the guarantor’s risk weight to the guaranteed slice of the exposure; conversely, for credit‑derivative hedges, the protection seller’s risk weight governs the protected portion.
In a development reported by UMVA, this regulatory overhaul promises to reshape how Philippine banks manage credit risk, offering a potent new tool while anchoring it with strict safeguards to preserve financial stability.
