P1.2T in fresh credit seen for property market

The Philippine property market could potentially see over a trillion pesos in fresh funds flow through it after the central bank on Thursday (Aug. 20) raised the cap that financial institutions are allowed to lend to the real estate sector.

In a statement, Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno said the policy making Monetary Board approved an increase in the real estate loan limit of universal and commercial banks from 20 percent to 25 percent.

“The increase translates to additional liquidity for real estate lending amounting to around P1.2 trillion based on end-March 2020 numbers,” he told reporters in a mobile phone message.

Apart from universal and commercial banks, smaller thrift banks are also covered by the relaxation of the rules the limit exposure to property loans — traditionally one of the strongest drivers of bank lending and economic growth, but also vulnerable to sudden changes in market sentiment and interest rate fluctuations.

In a separate statement, the BSP said the measure “aims to support growth in productive sectors of the economy amid the COVID-19 situation, including the real estate activities.

“It also encourages bank lending to households for the acquisition or construction of a residential real estate property,” the BSP said.

Prior to the amendments, universal and commercial banks were required to comply with a real estate loan limit of 20 percent of their total loan portfolio, net of interbank loans.

These large financial institutions and any of their subsidiary thrift banks are also required to comply with the real estate stress test limits, after assuming a 25 percent write-off of real estate exposures, on both solo- and consolidated basis.

These standards are a 10 percent capital adequacy ratio and 6 percent common equity Tier 1 capital ratio for their subsidiary thrift banks, as well as non-subsidiary ones.

Under the new guidelines, the methodology for computing a bank’s rest estate stress test limits was revised to exclude residential real estate loans to individuals for own occupancy and

foreclosed real estate property, the BSP said.

These stress test thresholds are implemented as soft limits such that a bank may maintain exposures to real estate for as long as it is able to demonstrate ability to manage risks, the regulator explained.

“The forthcoming guidelines reinforce this approach by relating assessment of risks by a covered bank on its real estate exposure to its internal capital adequacy assessment process or capital planning process,” the BSP explained. “This ensures that a holistic approach is adopted by banks in the management of their risks vis-a-vis their capital position.”

TSB