THE Bangko Sentral ng Pilipinas (BSP) wants to lower the credit risk weight for sustainable housing loans in a bid to encourage green lending by banks.
These specialized financing products fund eco-friendly homes, sustainable construction, or energy-saving renovations like solar panels. The loans offer lower interest rates, longer terms, or higher appraisal values for properties with green certifications, reducing long-term energy costs for homeowners.
A credit risk rating refers to the assessment of a borrower‘s creditworthiness and the likelihood of loan default.
In a recent draft circular, the BSP said it plans to assign a 20-percent credit risk weight to qualified sustainable housing loans — lower than the 50 percent currently applied to standard residential real estate loans extended to individuals.
The proposed measure forms part of amendments to the BSP’s Sustainable Finance Framework under the Manual of Regulations for Banks (MORB).
“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,” the BSP said.
It will reduce the capital charge on banks for these types of loans, making it more attractive for lenders to expand their portfolios in sustainable housing finance.
The proposal is aligned with international standards, the BSP said, noting that the lower risk weight is based on the Basel framework’s standardized approach for certain individual exposures.
Green housing loans are suited to the country which remains highly vulnerable to climate-related hazards such as typhoons, flooding and extreme heat, exposing households and residential assets to significant physical risks.
However, the domestic market for sustainable housing finance remains “nascent,” the BSP said, with only a limited number of banks offering dedicated green housing loan products.
These existing products are largely focused on renewable energy components such as solar panel installations, highlighting the need for clearer regulatory guidance and stronger incentives to broaden adoption, the BSP noted.
Under the proposal, a sustainable housing loan refers to a residential real estate loan granted to an individual borrower for the purchase, construction, or renovation of a home that significantly contributes to climate change adaptation and environmental objectives, in line with the Philippine Sustainable Finance Taxonomy Guidelines.
To qualify for the preferential risk weight, the loan must be secured by a first mortgage on a residential property that is or will be occupied by the borrower, and must meet at least one of several sustainability criteria.
These criteria include climate risk resilience and site sustainability, such as locating properties in areas with low or manageable environmental risks, or incorporating design features that reduce vulnerability to hazards like flooding and extreme weather.
Homes may also qualify if they demonstrate energy efficiency, including the use of energy-saving technologies or on-site renewable energy systems such as rooftop solar panels.
Meanwhile, properties that adopt water efficiency measures — such as rainwater harvesting or water-saving plumbing systems — may also be considered eligible.
