BSP closely monitoring asset prices

MACTAN, Cebu , Philippines   â€“ The Bangko Sentral ng Pilipinas said it will not “hesitate” to deploy measures to prevent any asset price bubbles forming in the property sector amid sustained growth in real estate credit.

Central bank Deputy Governor Diwa C. Guinigundo, during the annual BSP Lecture Series, said the above 20-percent increase in loans to real estate in the three years to 2013 bears “closer monitoring.”

“Today, while there is no evidence of overstretching of asset prices as far as real estate sector is concerned, if you will have over 20 percent, 30 percent, or 25-percent (credit) growth, it also comes to a point when it becomes risky,” Guinigundo said.

The BSP official said that during the height of the global financial crisis in 2008, real estate credit growth hit 30.2 percent, but this sharply fell to 12.3 percent in 2009 and 12.2 percent in 2010.

The figure climbed to 25.2 percent in 2011 and to 29.7 percent in 2012, before slightly easing to 22 percent last year.

“If there is evidence that there are signs (of asset price inflation) then the BSP will not hesitate and we will undertake the necessary measures from the monetary policy side and the prudential side,” Guinigundo said.

Real estate loans amounted to P831.787 billion last year, up from the P676.928 billion recorded in 2012.

The increase was driven by a 24-percent expansion in commercial real estate borrowings to P511.337 billion and a 21-percent climb to P320.45 billion in residential property loans, central bank data showed.

The BSP, as part of its mandate to ensure financial stability, monitors banks exposure to the real estate sector. The real estate loans, however, only form a part of the exposure as this also includes investments in real estate securities.

In August 2012, the central bank tightened rules in monitoring banks’ exposure to the real estate sector to ensure no asset bubbles arise in the sector.

The new expanded reporting system include looking at loans to developers of socialized and low-cost housing, and to individuals, and credit supported by non-risk collaterals or Home Guarantee Corporation guarantee.

Moreover, banks are also required to report investments in debt and equity securities that finance real estate activities.