Asset prices under watch by BSP

MANILA, Philippines - Asset prices are under watch by the Bangko Sentral ng Pilipinas (BSP), which noted a tightening of bank standards on granting housing loans ahead of this week’s release of expanded real estate exposure data.

“We have an asset watch team where we have stepped up the monitoring of real estate prices,” BSP Assistant Governor Ma. Cyd Tuaño-Amador told reporters last Friday.

“Pockets of concern” have been noted on high-end commercial real estate as well as “rising rentals and declining spaces,” but such should be no cause of worry as they are driven by demand.

“We are not yet alarmed but we are sufficiently attentive to what can be the underlying risks,” Amador said.

In its Fourth Quarter Senior Bank Loan Officers Survey, the central bank noted tighter credit standards for commercial real estate loans despite general easing of requirements for other kinds of credit.

“Slight tightening” was monitored on collateral requirements, loan covenants, and payment terms the previous quarter, and is expected to persist until March, BSP director Dennis Lapid said in a briefing.

This, as banks responded to BSP’s expanded monitoring of real estate exposure, results of which will be released tomorrow, Amador said.

In August last year, exemptions to exposure computations were dropped, while in November, uniform standards on contract-to-sell financing were also bared in a bid to ensure lenders remain within 20-percent exposure limit.

Concerns were because of historic low interest rates, banks may have fallen beyond credit standards by lending out too much beyond their capacities. This, in turn, could provoke asset bubble formation which is detrimental to the economy.

As of June 2012 however, property exposure - the proportion of housing loans to total loan portfolio - remained under control. It stood at 14.97 percent, up slightly from the first quarter’s 14.26 percent but down from previous year’s 15.19 percent.

Despite stricter rules, Lapid said demand for real estate credit “actually increased” in the fourth quarter.

“The reasons cited were improved economic outlook by clients, increased working capital financing needs, attractive financing terms and low interest rates,” he pointed out.