MANILA, Philippines - The Bangko Sentral ng Pilipinas (BSP) has allayed fears of a property bubble as banks start to implement new measures placed by the regulator in monitoring credit to the real estate industry.
“Lending to real estate is one of the fastest growing components of credit,” BSP Deputy Governor Nestor A. Espenilla Jr. told reporters.
“Whether or not we are in a possible bubble, I don’t think we’re there yet but it’s always a good reminder to link every credit decision to capital,” he stressed.
The BSP last month required banks to undergo a separate stress test in order to assess the impact of their exposure to the real estate sector once borrowers fail to service their loans.
Under BSP Circular 839, banks should be able to maintain a common equity Tier 1 capital ratio of at least six percent and a minimum risk-based capital adequacy ratio of 10 percent even if 25 percent of a lender’s exposure to the property sector has been written off.
“Basically, REST (Real Estate Stress Test) limit is a signal to the industry to pay close attention to their real estate exposures because of the potential risk if you are too concentrated,” Espenilla pointed out.
“It links exposure to available capital. It’s not saying don’t lend, but you have to make sure you manage it,” he added.
The new measure takes effect this month and aimed at ensuring banks have enough capital to absorb potential losses to the property sector.
There would be a quarterly report submitted before BSP’s the Monetary Board regarding the new stress test for banks. Those found non-compliant will be given the chance to explain and submit an action plan to address their shortcomings.