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Property loans manageable

By Julito G. Rada | Jun. 16, 2014 at 12:01am [ manilastandardtoday.com ]

Bangko Sentral Governor Amando Tetangco Jr. said the banking industry’s credit to the real estate sector remains manageable, but several banks may be more exposed than others, in case the industry hits a downturn.

“[The] overall situation remains manageable. However, some banks may be increasingly more exposed,” Tetangco said in an e-mailed statement to reporters over the weekend.

Banks with heavy credit exposure to real estate and weak capital base are considered vulnerable, in case of a downturn in the economy which can trigger loan defaults, or if the property sector suffers from a sudden drop in prices.  Real estate is currently the fastest-growing segment of the economy, supported by the growth of the business process outsourcing industry and remittances.

Tetangco, however, said the recently issued policy on real estate credit did not indicate any imminent vulnerability among banks. He did not identify the banks with high exposure to real estate risks, but said they would soon be tested to determine their capability to handle such risks.

The policy-making Monetary Board of the Bangko Sentral on Thursday approved the conduct of stress tests on banks as part of a pre-emptive macro-prudential policy measure to ensure the banking industry’s exposure to the real estate sector.

“With this new guideline, the BSP is not saying that banks should not engage in housing credits/exposures. Instead, we are saying that banks must have enough capital to absorb losses under stressed market conditions. Therefore, if a bank chooses to increase further its real estate exposure, that will be okay with BSP for as long as the bank is well-capitalized,” Tetangco said.

Tetangco said the new policy was aimed at banks which were increasingly more exposed “so they can control their vulnerability.”

He said using the expanded definition of real estate exposures, instead of the old way of measurement, the banks’ current real estate exposure was below 22 percent of the total loan portfolio.

The Bangko Sentral earlier set a 20-percent regulatory ceiling under the old way of measuring real estate exposures, which was instituted after the 1997 Asian financial crisis.
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