Bangko Sentral: Banks' real estate exposure breaches ceiling

The exposure of banks to the real estate sector went a little over the 20 percent cap but there is no reason to worry, an economist said on Friday. The total real estate exposure of universal, commercial and thrift banks reached P821.7 billion as of December 2012, the central bank's Monetary Board said in a statement Friday. This is 20.86 percent of the total loans of banks, which is above the 20 percent cap prescribed by the Bangko Sentral ng Pilipinas. There is no cause for concern as this "is not whether it is above or below the cap. The conditions in 1997 and today are very different," Dr. Johnny Noe Ravalo, Bangko Sentral managing director, told GMA News Online. He noted that in a survey all exposures of all banks, whether loan, securities,it was only counted were counted. "This is not a numbers game. The 20 percent cap is also in review, so there's no point of comparison. This just shows the full extent and we'll take measures on more granular data," Ravalo said. At this point it's not much of a worry, yet. The BSP's monitoring and its aim is to avoid a bubble,” Bank of the Philippine Islands economist Emilio Neri Jr. told GMA News Online in a separate interview. “These are pre-emptive measures rather than reactionary ones,” he added. In a statement, Governor Amando M. Tetangco Jr. said “it is important that we have a continuing appreciation of the quality of credit standards, specially at this juncture where market rates have declined against historical norms. “Taking this holistic view of the market is an effective way to ensure that we preserve and build upon the gains that we have already achieved thus far,” the Governor added. Central bank data suggests that banks' non-performing real estate loans ratio continues to be stable at 3.7 percent as of end-December 2012. Furthermore, semestral stress tests on banks have consistently showed the ability of bank balance sheets to withstand simulated across-the-board defaults in residential real estate exposures, according to the Bangko Sentral. Latest stress test results also showed the capital adequacy ratio of tested commercial, universal and thrift banks stand at 15.77 percent despite a 50 percent simulated default on residential real estate loans. The BSP noted further data refinements may still be introduced into the expanded report. Banks must limit their “real estate exposure” to a maximum 20 percent of their total loan portfolio to guard against a potential asset price bubble in the real estate sector, the central bank noted. An asset price bubble is a phenomenon where significant demand for assets, such as real properties, leads to a sudden and steep rise in prices. In August 2012, the Bangko Sentral issued new rules that further limit banks’ exposure to the real estate sector which include individual housing loans, corporate loans to fund socialized and low-cost housing, and the purchase of bonds and stocks sold by property firms. — VS, GMA News