Wednesday, July 9, 2014
Bangko Sentral ng Pilipinas (BSP) has introduced stricter rules on banks' real estate exposure to ensure that lenders have enough capital to absorb potential losses. This new policy has been approved by the Monetary Board (MB) and requires stress tests for banks to determine if their capital is ready to absorb credit risks that may arise from the property sector.
The BSP says the new media does not reflect any imminent vulnerability among banks with exposure to the real estate sector.
Universal, commercial and thrift banks will need to meet a capital dependency ratio of 10 percent of qualifying capital after the stress test results. Universal and commercial banks, along with their thrift bank subsidiaries, will need a Common Equity Tier 1 level with at least six percent of their qualifying capital. Stand-alone thrift banks need a Tier 1 ratio of six percent of their qualifying capital.
Banks that are not compliant with the new measure will have to submit a formal explanation to the BSP on why they should not undergo further remedial action. Should BSP find the explanation insufficient, the bank will be instructed to submit an action plan to them so it can meet the stress test within a reasonable period.
Using stress tests is aligned with the international standards set under the Basel Accord. These stress tests are also preferred over absolute limits because, according to the BSP, they do not prejudice the real estate industry.
“The Monetary Board believes that this is an opportune time to introduce such measures so banks will be appropriately guided by the policy direction.”
BSP says it was implementing the measure with providing basic shelter as a basic need in mind, and recognizing the growth of the real estate industry in line with national demographic factors.