BSP eyes lower capital charge to boost green home financing

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April 13, 2026 | 12:00am

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) is proposing to sharply cut the credit risk weight on sustainable housing loans to 20 percent from the current 50 percent, in a bid to encourage banks to expand financing for climate-resilient homes.

In a draft circular, the central bank said the proposed preferential treatment would apply to residential loans that meet sustainability criteria, marking a significant regulatory incentive aimed at developing what it described as a still “nascent” market for green housing finance.

“To support the expansion, the BSP promotes sustainable housing loan financing through the assignment of a credit risk weight of 20 percent,” the BSP said, noting that this is lower than the 50 percent risk weight currently applied to standard housing loans secured by a first mortgage.

A lower risk weight reduces the amount of capital banks must set aside for these loans, effectively making such lending more attractive and potentially cheaper for borrowers.

The proposal forms part of the BSP’s broader sustainable finance push, which seeks to align banking activities with climate adaptation and environmental objectives under the Philippine Sustainable Finance Taxonomy Guidelines.

The central bank underscored the urgency of the measure, citing the Philippines’ exposure to climate-related risks.

“The Philippines is highly vulnerable to climate-related hazards, with households and residential assets increasingly exposed to physical risks such as flooding, typhoons and extreme heat,” the BSP said.

It added that strengthening resilience at the household level is a key component of the country’s climate adaptation agenda.

Under the draft, a sustainable housing loan is defined as a residential real estate loan granted to an individual borrower for the purchase, construction or renovation of a home, including the installation of solar panels, that contributes to climate resilience and environmental objectives.

To qualify for the preferential 20 percent risk weight, the loan must be secured by a first mortgage on a property occupied by the borrower and meet at least one sustainability criterion.

These include features related to physical climate risk resilience, such as homes located in low-risk areas or designed with flood protection and reinforced structures, as well as energy efficiency measures like reduced power consumption or on-site renewable energy systems. Water efficiency features such as rainwater harvesting and efficient plumbing systems are also considered.

The BSP said the policy would provide regulatory clarity for banks designing green housing products while promoting the mainstreaming of climate action at the household level.

“By introducing a differentiated capital treatment, the measure aims to incentivize increased lending for climate resilient housing, support the mainstreaming of household-level climate action and contribute to the achievement of the Philippines’ Nationally Determined Contributions, National Adaptation Plan and the Philippine Development Plan, while upholding the BSP’s mandate to promote financial stability,” it said.

Once finalized, the circular will take effect 15 days after publication in the Official Gazette or a newspaper of general circulation. Stakeholders have until April 17 to submit comments on the draft circular.

The BSP said the move is expected to help scale up sustainable housing finance, which currently remains limited and largely concentrated on renewable energy components such as solar panel installations.