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BSP identifies ‘pockets of concern’ in asset prices

By Prinz P. Magtulis (The Philippine Star) | Updated November 12, 2012 - 12:00am

MANILA, Philippines - The Bangko Sentral ng Pilipinas (BSP) has identified “some pockets of concern” in asset prices, but stressed these are nothing serious and that it remains vigilant to ensure bubbles are not formed, an official said.

“We are seeing some pockets of concern but these are very limited, very cyclical in nature, partly reflecting pent up demand,” BSP Assistant Governor Ma. Cyd Tuaño Amador told reporters.

The statement was made as a quarterly BSP survey released last week showed banks have become more careful extending commercial real estate loans in the third quarter. These loans are used to finance big-ticket projects such as malls and condominiums.

Data showed 23.1 percent of bank respondents have “tightened somewhat” their requirements for getting commercial real estate loans. This compared to zero during the previous four quarters. Thirteen lenders have participated in the survey.

“This can be attributed to banks’ reduced tolerance for risk, less aggressive competition, deterioration in asset portfolio of respondent banks and stricter financial system regulations,” a BSP statement said.

Banks particularly made “stricter” collateral requirements and loan covenants, the survey showed, even as loan values were not increased and payment terms were not lengthened.

More rule tightening is expected in the coming months, the survey said, and as such a “slight decline” in demand for commercial real estate credit could be expected.

Standards for other type of bank credits-such as auto loans and credit cards- were generally unchanged from the second quarter, the survey said.

Amador said BSP is keeping an eye on real estate lending, which if proven excessive could spur asset bubble formation or when asset prices overshoot that they do not reflect real market prices. Such is detrimental to the local economy.

“We remain watchful of developments but we would have to wait for new reports to arrive and from there we will determine if there is need to adjust real estate exposure rules,” she explained.

In August, BSP unveiled a tighter computation of banks’ real estate exposure. Among others, banks should now include credit extended to low-cost housing projects and those channeled in securities- both were originally exempted from calculations- in computing their property exposure.

The 20-percent exposure cap had been retained.

“When you include the exemptions, banks have an exposure of between 15 to 16 percent. That does not include those going to financial markets. We would have to see the reports to see a clearer picture,” Amador explained.
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