BSP ready to unleash more tools to keep banks' real estate bets in check

Monetary authorities are still unperturbed by the rise in domestic banks' exposure to real estate, but they are ready to implement more measures to halt any formation of bubbles in the property market.

In a briefing on Thursday, Bangko Sentral ng Pilipinas (BSP) Deputy Governor Diwa Guinigundo the growth in the exposure of banks to the property sector to 22 percent of their total loan portfolio is not yet worrisome but is "something we need to monitor."

"This is not to say that there is a possibility of an asset bubble in the industry. What you look for is the pricing in terms of capital values, rentals, vacancy rates and occupancy rates of residential units and office space," Guinigundo said.

The central bank official said that so far, vacancy rates for office space have been dipping, which meant that there is still sufficient demand despite the continued construction of buildings within Makati and Ortigas business districts.

Moreover the present levels of capital values and other price indicators in real estate are still lower than what the industry saw in 1997.

In short, there is still no overstretched valuation in the industry, Guinigundo said.

To know where the property sector is going one must look at domestic credit because it "fuels any undue exposure of banks to real estate," he said, adding that the ratio of credit to gross domestic product (GDP) with the long-term trend is still below the threshold level of 2 percent.

Earlier, the BSP said it would order banks to undergo property stress test as property loans and investments rose 6.8 percent to P900 billion in the second quarter of 2013.
Of the total amount of bank credit, P708 billion are composed of property loans, which now make up 18 percent of the total loan portfolio of commercial banks as of March 2014. On average, loan growth to property sector hit 21.2 percent year-on-year in the past 15 months to March 2014.

“Real estate exposure historically has been the trigger of problems in many banking systems. It’s quite natural for regulators including BSP to be particularly wary of this. We’re implementing a risk-based type supervision,” BSP Deputy Governor Nestor Espenilla told Bloomberg.

More measures on the way

Aside from the stress-test to ensure that banks are kept in their proper place, macroprudential measures are already put in place, including the maximum exposure to real estate, loan-to-value and single borrowers' limit. Guinigundo said all of these tools would moderate the kind of credit going into the real estate sector.

"Moving forward, the Monetary Board can always consider additional macroprudential measures, if and when necessary," he added.

Earlier, Jones Lang LaSalle said there might be a slight oversupply of residential units towards the end of the year as six-year-old projects have already been finished.

Again, this is no cause for worry, Guinigundo said, as the market has its own mechanism to correct itself "but the banks have to rethink their credit standards."

- Interaksyon