[Vantage Point]The hidden losses inside Philippine banks

For decades, investors judged Philippine banks using a familiar checklist: loan growth, non-performing loans, quarterly earnings, and dividend payouts. By those metrics, the industry’s largest institutions appear to be in excellent health. Profits remain robust, credit quality has steadily improved since the pandemic, and capital ratios comfortably exceed regulatory minimums. Yet, Vantage Point’s own reconstruction of the country’s largest banks suggests investors have been watching only half the balance sheet. The next important measure of banking strength is not hiding in bad loans. It is hiding in government bonds. Rising interest rates have quietly erased billions of pesos from shareholder equity as the market value of government securities declined. Security Bank, for one, disclosed cumulative unrealized losses equivalent to 7.5% of its Common Equity Tier 1 (CET1) capital, more than double the 3.5% reported at the end of 2025. Banco De Oro (BDO) reported approximately P16.2 billion in unrealized losses during the first quarter of 2026. Preliminary disclosures likewise point to measurable capital impacts at the Bank of the Philippine Islands (BPI) and Metrobank. None of these figures suggests financial distress. Philippine banks remain among the strongest in Southeast Asia. Collectively, however, they reveal an industry-wide exposure that has attracted remarkably little attention despite becoming one of the most significant changes in bank balance sheets over the past two years. The question is no longer whether banks have unrealized bond losses. Almost all of them do after one of the most aggressive interest-rate tightening cycles in recent history. The more meaningful question is: which institutions assumed the greatest interest-rate risk relative to the capital available to absorb it? That capital is measured by CET1—the bank’s highest-quality financial cushion, consisting largely of shareholders’ equity and retained earnings. It is the first line of defense against unexpected losses and the benchmark regulators use to assess a bank’s financial strength. A paper loss that barely dents a large CET1 base may be insignificant, while the same loss could materially weaken a bank operating with a thinner capital cushion. Answering our previous question requires looking beyond earnings releases and rebuilding the balance sheets of every major Philippine bank from the ground up. Our forensic database tracks each institution’s Fair Value Through Other Comprehensive Income (FVOCI) portfolio, amortized-cost investments, accumulated Other Comprehensive Income (OCI), unrealized gains and losses, CET1 capital, capital adequacy ratios, securities as a percentage of total assets, and portfolio maturity profile. Every figure already exists somewhere in annual reports, quarterly financial statements, and regulatory disclosures. What has never existed is a single framework allowing investors to compare the interest-rate exposure of Philippine banks on a like-for-like basis. FORENSIC DATABASE: Hidden interest-rate risk in Philippine banks This table is generated by Vantage Point based on our own computation, drafted on Excel, with the final image using Photoshop. The numbers are preliminary figures subject to verification against audited financial statements and regulatory disclosures. The database immediately changes the way investors should compare banks. Looking only at the peso value of unrealized losses is misleading because larger institutions naturally hold larger investment portfolios. The more meaningful measure is loss intensity—the unrealized loss relative to CET1 capital. A P10-billion paper loss means something very different for a bank with P500 billion of high-quality capital than for one with only a fraction of that amount. The objective is therefore not to identify the bank with the largest paper loss, but to determine which institutions have assumed the greatest interest-rate risk relative to their financial capacity to absorb it. Understanding how those losses arise is equally important. When the Bangko Sentral ng Pilipinas (BSP) raised policy rates to combat inflation, yields on government securities climbed while bond prices moved in the opposite direction. Accounting standards require many securities classified as FVOCI to be revalued at prevailing market prices every reporting period. Those valuation losses generally bypass the income statement and flow instead through Other Comprehensive Income, quietly reducing shareholder equity while leaving headline earnings largely intact. A bank can therefore report record profits even as movements in the bond market steadily erode its book value. That accounting treatment should not be mistaken for evidence of impending trouble. Government securities remain among the safest assets banks can own, and institutions with strong liquidity can usually hold them until maturity, allowing temporary valuation losses to reverse over time. The more important questions should focus on whether a bank accumulated unusually long-duration securities; how much of the resulting paper loss has already reduced high-quality capital, and whether sufficient liquidity exists to avoid selling those securities before maturity if market conditions become more challenging. Another layer of complexity comes from the BSP’s temporary regulatory relief for certain unrealized losses on qualifying government securities. Although the accounting losses remain real and continue to appear in financial statements, regulatory capital may receive more favorable treatment when capital adequacy ratios are calculated. The policy aims to prevent temporary market volatility from unnecessarily constraining bank lending or forcing institutions to liquidate government bonds at depressed prices. It is a legitimate prudential tool, but it also means investors should distinguish between accounting capital and regulatory capital. The two no longer always tell exactly the same story. For years, investors evaluated Philippine banks primarily through earnings growth and credit quality. Higher interest rates suggest that another scorecard is now needed. The industry’s next important risk measure may not be found in non-performing loans or quarterly profits but in the unrealized bond losses quietly accumulating in shareholder equity. Reconstructing those figures bank by bank will not predict the next banking crisis, and it isn’t supposed to. It will simply give investors a more complete picture of how resilient Philippine banks really are once the entire balance sheet — not just the income statement — is brought into view. I welcome your views on these and other issues where decisions made in power shape the country’s economic future. Below are some Vantage Point pieces you might have missed: Click here for other Vantage Point articles.