Banks offer P7-B NPAs to developers

About P7 billion worth of non-performing assets (NPAs) or bad assets have been put by banks under various joint ventures with property developers to take advantage of the improving prospects in the property sector, the Bangko Sentral ng Pilipinas (BSP) said.

BSP Deputy Governor Ernesto Espenilla Jr. told reporters that the central bank has so far approved P7 billion worth of bad assets that the banks could finally take out of their non-performing assets portfolio.

He said joint ventures between banks and property developers have picked up dramatically since the BSP decided to allow banks to enter into joint ventures as an alternative to selling their bad assets at a discount under the Special Purpose Vehicles Act (SPVA).

Espenilla said the latest BSP figures indicated that joint ventures so far approved and still in the pipeline would take out some P7 billion worth of properties that have been foreclosed by banks.

“This is the reason why we have not seen significant movement in SPVA sales but the BSP views this as a welcome development,” Espenilla said. “For the BSP, our bottom line is for these bad assets to be unloaded in order to improve the overall health of the banking industry.”

The approved SPVA transactions still amounted to a little over P40 billion with about P70 billion still in the pipeline awaiting approval, Espenilla said.

Although over P100 billion worth of bad assets have been unloaded so far under the SPVA, the banking industry is still saddled by over P220 billion worth of non-performing assets.

“Banks are less inclined to take a discount and more inclined to take advantage of the upside in the real estate sector,” he said.

Despite the expected surge, however, Espenilla said the BSP is not inclined to ease its restrictions on these joint ventures and banks would still be limited to participate only as owners of the properties to be developed.

“That’s their equity in these ventures and they are not going to be allowed to go beyond that,” Espenilla said. “The whole idea is for banks to concentrate on the business of banking, not property development.”

According to Espenilla, these restrictions would also keep banks insulated from any upheavals that might develop similar to the imploding asset bubble that led to the 1997 Asian financial crisis.

Just last week, the BSP approved three joint venture agreements between Banco De Oro and three property development firms.