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Banks’ reporting rules revised to check real estate exposure

Posted on December 19, 2012 10:04:47 PM [ BusinessWorld Online ]
THE BANGKO Sentral ng Pilipinas (BSP) has amended banks’ financial reporting guidelines to better monitor their real estate exposure and bad loans.
Memorandum No. 58-2012, dated Dec. 17, amended banks’ Financial Reporting Package “to allow for additional disclosures on non-performing loans and contracts to sell,” the issuance read.
Banks are required to report their financial health to the BSP on solo basis -- covering the head office and its branches -- every month and on a consolidated basis -- covering the parent bank and its subsidiaries -- every quarter.
Under the revised guidelines, banks are mandated to include in their balance sheets their loans and receivables from Contract To Sell (CTS) financing.
CTS financing is the “amortized cost of loans granted to developers of housing projects by way of purchase by the bank of receivables from contracts to sell executed between the developer and homebuyers.”
Prior to this issuance, only the loans and receivables from CTS financing involving socialized and low-cost housing were required by the BSP.
The new rules bring the Financial Reporting Package in line with the central bank’s new guidelines on CTS financing issued last month. There were no formal regulations governing the scheme before that.
Among others, the BSP required banks to deal only with licensed developers that have profitable operations, sound finances and technical capability to deliver on projects.
Projects must be 70% completed for land development or at the “top-off” stage for condominium developments.
CTS financing can be granted only when homebuyers are not more than 65 years old at the time of CTS maturity and are insurable. They must also hold a solid payment track record with the developer for the past six months, and they must have made a downpayment of at least 10% of the total contract price.
The BSP wants to check banks’ exposure to the real estate sector to prevent the creation of bubbles amid low interest rates and heavy foreign fund inflows.
Other revisions to the Financial Reporting Package include a more detailed reporting of non-performing loans, or obligations to banks unpaid at least 30 days after due date.
All banks are mandated to break down their loans according to their status: current; past due but not yet non-performing; past due and already non-performing; and items in litigation.
The breakdown should cover peso accounts, foreign accounts, foreign currency deposit accounts and foreign offices. It should also be applied to loans and receivables from interbank loans, repurchase agreements and securities lending and borrowing transactions.
Latest BSP data showed that non-performing loans made up only 3.01% the total loan portfolio of the Philippine banking system as of the first quarter. It was an improvement from the 3.72% notched in the same period in 2011.
The revised Financial Reporting Package will take effect on Jan. 1, 2013. -- Diane Claire J. Jiao  
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