BSP approves P2.5B bank-property ventures

The Bangko Sentral ng Pilipinas (BSP) has approved two major joint ventures between banks and property development firms worth P2.5 billion and officials said similar transactions worth P3.5 billion were pending for approval. BSP governor Amando M. Tetangco Jr. told reporters over the weekend that as of April this year, two banks have been granted approval for their joint-venture with property development firms, specifically for the purpose of developing foreclosed properties. Tetangco said the BSP was also considering other applications by four more banks for pieces of property worth P3.5 billion. "These transactions involve seven property firms," Tetangco said, adding that such transactions could dramatically reduce the non-performing assets (NPAs) of the entire banking industry. Tetangco, however, declined to disclose which banks were involved in the transactions that would lead to the development of foreclosed assets that were otherwise sitting idle. Last year, the BSP had allowed banks to join up with property developers to help ease the burden of some P220 billion worth of foreclosed real estate assets weighing down the banking industry. The BSP's Monetary Board (MB) issued the new guidelines allowing banks to form joint venture agreements (JVAs) with property developers but only under very restricted conditions. The guidelines drew the parameters for joint venture agreements between banks real estate development companies that required, among others, prior approval by the MB. Under the approved guidelines, the BSP said banks were allowed to enter into JVAs with real estate development companies to develop foreclosed real estate assets that were otherwise congesting banks' books as non-performing assets (NPAs). The BSP said bank regulators want banks to have the option of joining up with property developers to revive assets classified as real and other properties acquired through foreclosure or "dacion en pago" in settlement of loans and other advances (ROPAs). The guidelines also covered properties acquired as a consequence of their bank mergers/consolidations with other financial institutions. "The purpose of the property development may either be for their immediate sale or conversion into earning assets," Tetangco explained. The BSP said the MB was prompted by the objective to encourage and help banks to dispose of their holdings of non-performing assets (NPAs). Banks were also prohibited from providing funds to the joint venture either as a loan or capital contribution and they were further prohibited from recognizing income out of the properties it contributed to the joint venture regardless of the agreed valuation of said properties in the JVA. "They are only allowed to recognize income upon receipt of the proceeds from the sale of the developed properties," the BSP said. As an additional means to ease the burden of ROPAs on the operations of banks, the MB also authorized banks to invest in the equities of companies engaged in real estate development as a non-financial allied undertaking, provided that such investments are also limited to ROPAs and other properties acquired as a consequence of mergers/consolidations. - GMANews.TV