The Bangko Sentral ng Pilipinas (BSP) has taken decisive measures to strengthen the country’s digital banking landscape by issuing Circular No. 1240, s. 2026, which imposes a ₱1‑billion minimum capital requirement on thrift banks, rural banks, and cooperative banks shifting toward digital‑centric business models.
The circular requires banks that the BSP determines to be operating similarly to digital banks to comply with the capital requirement within six (6) months of receiving notice.
As digitalization accelerates across the financial sector, the BSP aims to ensure that banks adopting technology‑heavy operations maintain adequate capital buffers, robust risk management systems, and governance structures capable of handling the complexity of digital banking.
The circular also opens the door for additional digital bank licenses through conversions of existing thrift, rural, and cooperative banks—signaling a more competitive and innovation‑driven digital finance ecosystem
Circular 1240 and its Mandates
The issuance of Circular No. 1240 shows the BSP’s intent to tighten prudential standards for banks transitioning into digital banking.
The circular mandates a ₱1‑billion minimum capital requirement for banks whose operations increasingly resemble digital banks, whether due to rapid growth in digital deposits, digital loans, or technology‑driven service delivery.
Banks undergoing acquisition for the purpose of digital transformation must also meet the ₱1‑billion capital requirement at the time of application.
The BSP may impose additional safeguards such as enhanced supervisory reporting, restrictions on new digital products, and strengthened risk management systems. These measures aim to ensure that digital‑centric banks can manage risks arising from rapid growth, increased transaction volumes, and reliance on digital platforms.
Circular No. 1240 amends Section 131 of the Manual of Regulations for Banks (MORB), classifying digital‑centric thrift, rural, and cooperative banks as complex banks.
The classification subjects them to stricter prudential requirements, reflecting the heightened risks associated with digital operations.
The BSP evaluates digital centricity based on several indicators, including:
- Capability to offer end‑to‑end e‑KYC and digital deposit funding
- Ability to digitally offer and service loans
- Percentage of customers using digital financial products
- Share of accounts processed end‑to‑end through digital platforms
- Volume and value of electronic payment and financial services transactions
- Extent of technology‑heavy operations and automation
Banks meeting these criteria must comply with the ₱1‑billion capital requirement and enhanced prudential standards to ensure operational resilience.
Why BSP Raised the Capital Requirement
The central bank’s rationale is rooted in risk management.
Digital‑centric banks often experience rapid growth in deposits and loans due to the convenience and accessibility of digital platforms. This growth can outpace the bank’s risk management capabilities, exposing it to operational, cybersecurity, liquidity, and credit risks.
Through the raised capital requirement, the BSP aims to ensure banks have sufficient buffers to absorb losses and strengthen governance and risk management systems.
It also aims to promote a level playing field between digital banks and digital‑centric traditional banks while protecting consumers from potential failures of undercapitalized digital lenders.
The ₱1‑billion threshold aligns digital‑centric banks with the capital standards imposed on fully licensed digital banks, ensuring consistency across the sector.
Coverage of the New Rules
Circular No. 1240 applies to thrift banks, rural banks, and cooperative banks that meet either of two conditions:
- They operate under a business model similar to digital banks, or their capital and risk management systems are no longer commensurate with their risk profile.
- They use digital platforms to deliver services and record significant growth in loan or deposit balances.
Banks falling under these categories must comply with the ₱1‑billion capital requirement and enhanced prudential standards within six months.
Beyond capital requirements, the BSP may also impose enhanced supervisory reporting, restrictions on certain activities or new digital products, and strengthened risk management and internal control systems.
Moreover, automated anti‑money laundering systems and real‑time fraud monitoring are also to be checked.
The BSP may intervene when a bank’s loans or deposits increase by more than 30 percent for two consecutive quarters, demonstrating rapid digital‑driven growth that may require additional safeguards.
Digital Bank Licensing
Circular No. 1240 allows the BSP to issue additional digital bank licenses through conversions of existing thrift, rural, and cooperative banks.
Applications will be assessed based on, among others, business model, governance framework, risk management, financial and operational capacity, and technological readiness.
This opens opportunities for smaller banks to scale their digital operations and compete with existing digital banks, provided they meet the stringent requirements.
The Evolving Philippine Banking Sector
he circular represents a shift toward more disciplined digital transformation. While digitalization offers opportunities for financial inclusion, innovation, and efficiency, it also introduces risks that must be managed proactively.
The new capital requirement ensures that digital‑centric banks have the financial strength to withstand shocks, invest in cybersecurity, and maintain reliable digital platforms. It also protects consumers by ensuring that banks offering digital services are adequately supervised and capitalized.
For the broader banking sector, the circular promotes responsible innovation. Banks must balance growth with prudential discipline, ensuring that digital expansion does not compromise stability.
The ₱1‑billion capital requirement may lead to consolidation among smaller banks, as some may seek partnerships or acquisitions to meet the threshold. It may also encourage banks to invest more heavily in digital infrastructure, cybersecurity, and risk management.
In the long term, the circular supports the BSP’s goal of building a resilient digital banking ecosystem capable of supporting the country’s digital payments transformation.
As digital transactions continue to rise, stronger digital‑centric banks will play a crucial role in expanding financial inclusion and supporting economic growth.
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