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BSP, banks to list standards on housing credit

Preemptive move to prevent property price bubble
/ 09:59 PM November 25, 2012

MANILA, Philippines—The Bangko Sentral ng Pilipinas and banking-industry members have agreed to establish a set of standards that must be observed in the extension of housing and other real-estate loans, a move aimed at preventing a bubble in the property sector given the continually rising demand.

BSP Deputy Governor Nestor Espenilla Jr. said the benchmark practices on real-estate lending would be contained in a manual that would be published for industry members to observe.

The contents of the manual would take into account inputs from both the regulator and banks engaged in real-estate lending, Espenilla said. The BSP is holding discussions with banks through the three industry organizations—the Bankers Association of the Philippines (a group of universal and commercial banks), the Chamber of Thrift Banks and the Rural Bankers Association of the Philippines.


The standards will cover practices on the accreditation of property developers, the amount of equity required of borrowers, evaluation of payment capacity of borrowers and documentary requirements, among others.

“The BSP and industry members have agreed to have a set of reference for practices related to real estate lending. These will provide protection at the basic level [as far as preventing an asset price bubble is concerned],” Espenilla told reporters.

Meantime, Espenilla added that the BSP was considering requiring banks to limit their outstanding real-estate loans to a certain proportion of their capital. The objective is to further ensure that banks are not excessively exposed to the real-estate sector or do not contribute to a potential bubble in the property market.

Under existing rules, banks must keep their outstanding real-estate loans at a maximum 20 percent of their total loan portfolio.

Espenilla said the BSP was thinking that it might be prudent to also require banks to observe a ceiling on the proportion of their outstanding real-estate loans to their capital.

“Currently, the 20-percent limit as far as real-estate exposure of banks is concerned is in relation to their total loan portfolio. We want to also look at real-estate exposure in relation to capital,” Espenilla said.

The BSP official stressed, however, that the regulator still did not see signs that an asset price bubble was in the offing. He said efforts aimed at enhancing regulations on real-estate loans were merely preemptive moves.

Speculation that the Philippines might be facing a looming bubble in the property market came amid the robust growth in sales of residential and commercial properties over the last three years. The sales are aided by bank loans.


Documents from the BSP showed that the outstanding housing loans extended by thrift and universal and commercial banks in the country amounted to P232.57 billion by the end of the first quarter, up 21 percent from P192 billion as of the same period last year.

Outstanding commercial real estate loans reached P291.5 billion as of the same period, up year on year by 21 percent from P241 billion.

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TAGS: Bangko Sentral ng Pilipinas, bubble, property, Real Estate, standards
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