Amid talk of property price bubble, BSP plays it safe

Amid speculations that an asset price bubble could be in the offing, the Bangko Sentral ng Pilipinas announced on Thursday that it would impose limits to housing loans extended by banks to individual borrowers and to investments by banks in securities sold by real estate firms.

The BSP will likewise limit the loans extended by banks to developers of socialized and low-cost houses.

According to BSP Governor Amando Tetangco Jr., there is actually no basis yet for concerns that a bubble is forming in the housing market. But the central bank still finds it prudent to impose additional controls to the exposure of banks to the real estate sector.

“There are some forms of funding that go to the real estate sector, but these are actually not in the form of loans. We [BSP] want to get a complete picture of the exposure of banks to the real estate sector,” Tetangco yesterday told reporters at the sidelines of a financial forum sponsored by Bank of the Philippine Islands.

The Monetary Board of the central bank last week approved the expansion of the components of the “real estate exposure” of banks, Tetangco said. In particular, housing loans to individual borrowers, as well as investments by banks in securities issued by real estate firms are now included in the computation of “real estate exposure.”

In addition, loans extended to entities that use borrowed funds to build socialized and low-cost houses have been included in the computation of “real estate exposure.”

Under BSP guidelines, the maximum allowable “real estate exposure” of a bank is set at 20 percent of its total loan portfolio. The BSP is so      far keeping the 20-percent limit. However, it is expanding the components of “real estate exposure.”

Previously, in computing the “real estate exposure” of a bank, only loans to corporate borrowers engaged in real estate projects were considered.

But under the new rules, even investments by banks in securities issued by property firms, housing loans to individual borrowers, and loans to support development of socialized and low-cost houses will be included in the computation, Tetangco said.