Regulator tightens bank lending practices

The Bangko Sentral ng Pilipinas recently issued a set of guidelines that would enable banks to guard against lax lending practices just as demand for property assets is growing.

According to the regulator, there is no indication at the moment that a bubble in the property sector is forming, but it will not hurt to put preemptive measures in place.

In a circular letter made public on Thursday, the BSP notified banks of the guidelines, which it said were developed using inputs from regulators and members of the banking industry.

Under the guidelines, each bank must develop its own accreditation system for real-estate developers that stand to benefit from credit-aided purchases of properties by individuals or entities. Real estate projects of the same developers must undergo an accreditation process.

Also, banks must put up a system of evaluation for the capacity of borrowers of real estate loans. This is to help prevent loan defaults.

One provision states that a borrower may be extended a loan once he has already paid at least 10 percent of the value of the property. The borrower also must not be more than 65 years old and must have good credit standing.

BSP Deputy Governor Nestor Espenilla described the guidelines to be a tool of the regulator in assessing the soundness of the credit practices of banks.

“The industry reference practices should guide banks in their operations. The BSP will also be guided by these reference practices in assessing the quality of banks’ CTS [contract-to-sell] lending operations,” Espenilla said in the Circular letter 2012-084.

The circular came about after BSP officials and banking industry members held a series of discussions.

Concerns that an asset price bubble could be forming were prompted by the significant demand for houses and other real properties seen over the last three years.

Data from the BSP showed that outstanding housing loans extended by thrift, 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.

Also, outstanding commercial real estate loans reached P291.5 billion as of the same period, up year-on-year by 21 percent from P241 billion.  Michelle V. Remo