Philippine central bank adopts Basel III operational risk approach

Banks will undergo a monitoring period before the full implementation on Dec 2027.

The Bangko Sentral ng Pilipinas (BSP) has officially adopted the Basel III new standardisation approach (NSA) for determining capital requirements of banks.

BSP will use the approach to determine the capital that banks must hold to absorb unexpected losses from operational risk, it said in an announcement on 13 October 2026.

Full implementation of the NSA will begin with the end-December 2027 reporting period.

Philippine banks will undergo a monitoring period before the full implementation. During this time, they will submit capital adequacy ratio reports using both the NSA and the existing methodologies.

The NSA replaces the existing approaches—the basic indicator approach (BIA) and the standardised approach (TSA)—for calculating operational risk capital requirements for universal, commercial, and digital banks, and their subsidiary banks and quasi-banks (covered financial institutions).

The NSA is more risk-sensitive than the two approaches it considers a bank’s income and historical operational loss experience, and allows capital requirements to better reflect a bank’s operational risk profile because of this, the BSP said.

Operational risk refers to the risk of loss arising from inadequate or failed internal processes, people, systems, or from external events. These may include cyberattacks, fraud, human error, technology failures, and natural calamities, the BSP said.

The BSP said that the NSA encourages implementation of a stronger operational risk management system and the development of a robust historical loss database.

BSP expects the adoption to strengthen Philippine banks’ resilience and align the central bank’s risk-based capital adequacy framework with international standards.