BSP revising rules on realty exposure of banks

By Riza Lozada 

The Bangko Sentral ng Pilipinas (BSP) has sought the view of local banks on a proposal to redefine their real-estate exposure, to include investments in socialized-housing developments. 

BSP Deputy Governor Diwa Gunigundo said the effort is in line with the desire to come up with a comprehensive data on the loan exposure of the Philippines banking sector in the real-estate industry.

The definition of real-estate exposure among banks was last revised in 2012, when the BSP broadened the scope to not just direct housing loans but also the banks’ holdings of bond and equity investments in property developments.

It imposes a 20-percent cap on banks’ credit exposure to the real-estate industry but excludes loans for socialized and low-cost housing and borrowings through debt securities.

The BSP has kept a close watch on the property market since the 1997 Asian financial and the 2008 global economic crises.

The strong economic growth posted the past years and the high liquidity in the financial system raised the BSP’s worries of a real-estate bubble that could hit banks.

The redefinition will also contribute to ensuring that the capital adequacy ratio (CAR) of banks remained within the regulatory requirements.

“At this point, we do not see any sign of stress in the real-estate sector,”

Gunigundo said in answer to a question at a recent Kapihan sa Manila Hotel forum of Samahang Plaridel.

In a situation where the liquidity is high, money supply and loan increase can lead to the bursting of the real-estate market.

But the BSP has been using Basel-based Bank for International Settlement (BIS) and the International Monetary Fund (IMF) standards in stress tests for banks on their real-estate exposure, according to Guinigundo.

He said that administering these two tests, the BSP has found that “so far, we are far from a dangerous level. We are in touch with various real-estate developers and it is comforting to know that they are now more careful and discreet in their plans.”

Guinigundo noted that these same big developers had been affected by the 1997 Asian crisis that befell the industry. “All of them were hurt in 1997,” he said, adding that “they have learned their lessons.

Based on BSP data, the Philippines banking system, as of end-September 2015, had real-estate loans of P1.23 trillion, composed of P427.37 billion in loans for residential property and P805.34 billion for commercial developments.

The ratio of real-estate loan to the total loan portfolio of the banks, as of end-September 2015, was recorded at 20.72 percent.

The BSP data further indicated that the local banking system, which include universal, commercial and thrift banks and their subsidiaries, incurred gross non-performing loans on real-estate exposures at 20.72, as of end-September 2015.

The BSP will release its official report on the real-estate exposure of banks on February 4.

The report had been expected earlier on January 14 but this was revised due to what the BSP said was an operational adjustment.