BSP sets rules on closer real estate watch
The Bangko Sentral ng Pilipinas (BSP) is tightening its watch on real estate loans from rural banks as part of a lookout for bubbles forming in the sector.
The new rules under Circular 976, issued on October 10, also clarified that lending for public infrastructure projects is not covered by the 20 percent real estate exposure cap set by the regulator.
“The Monetary Board, in its Resolution No. 1617 dated 22 September 2017, approved the amendments to the Expanded Report on Real Estate Exposure of Banks, and the submission of the Report on Project Finance Exposure to gather more granular information regarding these exposures which are useful inputs in arriving at a comprehensive assessment of the quality of bank loans and vulnerability of banks on risks arising from these exposures,” the circular read.
Banks have to report, starting next year’s second quarter, details of real estate loans for mid- and highend housing units, as well as socialized and low-cost housing. Data on commercial real estate loans in terms of specific structures being financed — like residential units, office buildings, malls and factories — should also be included in the regular reports.
There will be “a pilot run” of the new reporting requirements in the first quarter, the circular read.
Rural banks that are subsidiaries of universal, commercial and thrift lenders also have to submit expanded reports on real estate exposure starting March 31.
These measures add to the existing regulatory framework governing real estate exposure of banks that includes a cap on real estate loans equivalent to 20 percent of total loan portfolio net of interbank loans, as well as real estate stress test limits, which assume a 25 percent writeoff of outstanding property debts.
In the same circular, the BSP clarified that lending for construction, rehabilitation and improvement of highways, streets, bridges, railways, transport systems, ports, power plants “and other infrastructure projects that are intended for public use” are not included in computing a bank’s exposure to real estate.
However, banks are required to submit regular reports on project finance exposure on solo and bank group terms.
“[T]he new ruling by the Bangko Sentral ng Pilipinas targets two sectors where vulnerabilities could form amid strong loan growth,” Fitch Ratings had said in a September 27 note, referring to results of the BSP Monetary Board’s September 21 meeting during which the additional reporting requirements were approved.
“Closer central bank scrutiny may make banks more cautious in lending to these sectors, but it does not amount to regulatory tightening to curb growth.”
The BSP has been monitoring the property market in the wake of the 1997 and 2008 financial crises, when mortgage delinquencies triggered a global recession following a correction in housing prices abroad.
(Bworldonline.com)