Tighter rules on real estate loans mulled

MANILA, Philippines - The Bangko Sentral ng Pilipinas (BSP) may implement stricter guidelines on banks’ exposure to the real estate sector as the country’s property market continues to boom.

“Our prudential focus here is to monitor and determine whether acceptable credit standards are maintained by banks with respect to their exposures to real estate,” BSP Governor Amando M. Tetangco Jr., said in an e-mail yesterday.

“We can do this, for example, through the reforms in Contract to Sell financing, a review of existing concentration limits, forms of exposure haircuts or a further review of the risk weights applicable to different types of exposures,” he said.

The central bank monitors credit conditions including those extended for real estate activities to ensure these remain in line with the BSP’s price and financial stability mandates.

The BSP in 2012 introduced tougher regulations on monitoring banks’ exposure to the real estate sector.

The expanded reporting now covers loans to developers of socialized and low-cost housing, and to individuals, and credit supported by non-risk collaterals or Home Guarantee Corp.  guarantee. At the same time, banks were required to report investments in debt and equity securities that finance real estate activities.

“Our concern for any sector – including real estate – is part of our prudential oversight of bank exposures,” Tetangco said.

“Issues such as concentration risk, credit quality, underwriting practices and interconnectedness will always be recurring concerns for prudential reasons,” he added.

Latest central bank data showed local banks’ exposure to the property sector amounted to P900.1 billion as of June last year, up seven percent from end-March.

Real estate loans climbed seven percent to P762.5 billion in the second quarter last year from the first three months, while investments in real estate securities increased eight percent to P137.7 billion.

“Real estate is perhaps the sector that has been most covered in the press because of the natural link to asset price bubbles,” Tetangco said.

“The phenomenon of bubbles certainly is a critical concern because economic history is replete with cases where bubbles caused massive dislocations and/or instigated further damage through the rest of the economy via further contagion,” he said.