Banks to disclose infra projects’ exposure to BSP
Big banks that are undertaking or planning to be involved in capital-intensive infrastructure projects are required to submit a new report on project finance exposures to the central bank.
The Bangko Sentral ng Pilipinas (BSP) has revised banks’ disclosure requirements to enhance monitoring and assessments of risks on their real estate and project finance exposures. A bank’s project finance report must include all material information on the infrastructure project and the project phase.
The Bangko Sentral ng Pilipinas (BSP) said the expanded disclosure requirements should add dimension to banks’ risks reporting, that it should “(deepen the) understanding of these exposures (to) improve the quality of BSP’s financial surveillance process”. The BSP could then craft its policy measures around risks areas that “warrant supervisory action.”
Industry sources said there was an increasing trend in banks' project finance which is a financing structure to fund crucial economic-enhancing projects such as infrastructure and power/energy. The central bank has to keep a closer eye on banks' longer exposures in these types of deals since unlike traditional bank lending schemes, it is a long-term financing that is dependent on the project's estimated cash flows and not on the credit background of proponents.
The expanded reporting on real estate and project finance exposures will be implemented end of second quarter or June 30, 2018.
Banks are however asked to start reporting by March 31 next year as a pilot run. The revised “Expanded Report on Real Estate Exposures” will be implemented as a supplement to the reportorial template of the “Expanded Report on Real Estate Exposures” which has been in placed since 2012.
“This report will enable the BSP to obtain a better grasp of the extent and quality of universal and commercial banks’ exposures to project finance, especially since demand for project finance is expected to increase and gain further traction as the country moves towards achieving its infrastructure goals,” the BSP said.
The central bank stressed that the new measures will strengthen the existing regulatory framework governing real estate exposures of banks. This framework consists of the real estate loan limit of 20 percent of total loan portfolio, net of interbank loans, as well as the real estate stress test limits which were adopted in pursuit of the BSP’s objective of fostering financial stability, said the BSP.
The BSP’s Monetary Board approved the revised reporting in an effort to strengthen oversight of banks’ real estate and project finance exposures. “The reportorial enhancements form part of BSP’s macroprudential toolkit and are being deployed to sharpen the BSP’s assessment of banking system exposures to the property sector.”
Aside from the project finance reporting, based on the new guidelines the large lenders will also have to submit “granular information” on their real estate loans to mid- and high-end housing units, in addition to socialized and low-cost housing.
All covered banks are also required to report commercial real estate loans as to the underlying commercial project being financed such as residential units, office buildings, malls and factory/plant facilities.
As of end-June this year, big banks' real estate exposures went up by 18.55 percent year-on-year to R1.92 trillion. A large portion of real estate exposures of banks, including their trust departments, are loans to property developers. At this level, the central bank still consider the industry real estate exposures as manageable.
As of end-March, based on the Residential Real Estate Price Index of the BSP, residential real estate prices moved up 1.1 percent yearon-year, mostly because of higher condominium prices. The growth in residential property prices was higher compared to same time last year of 0.3 percent.