Raise regulatory limit, bankers urge BSP

INDUSTRY PLAYERS want the Bangko Sentral ng Pilipinas (BSP) to reconsider a regulatory limit on real estate exposures following a breach last year.

There is room to raise the cap, said Bankers Association of the Philippines (BAP) President Lorenzo V. Tan, to accommodate the property market’s rapid growth without sacrificing prudential standards.

Universal, commercial and thrift banks are required to keep their real estate exposure to only 20% of their total loan portfolio. This was slightly exceeded in 2012 when their exposure was valued at P821.7 billion, 20.9% of banks’ total loans.

"My point is it’s not the quantity but the quality of the portfolio. The limit may be 15% but if the loans are sub-prime we have a bigger problem," Mr. Tan said.

Real estate exposure remains healthy, he pointed out. Vacancy levels and bad loans are down, while future supply can be met by demand. Minimum down payments and mortgage payments are other indicators that can be watched.

"When these exceed acceptable norms, then it is time to impose macroprudential measures to slow down the market," Mr. Tan said.

He warned that it would be dangerous to prematurely curb property market growth given its role in supporting the economy.

"Real estate pulls in 50 industries with it -- glass, aluminum, cement, appliances, architecture [among them] ... You [must] continue [supporting] the sector, it adds to gross domestic product growth," he added.

Metropolitan Bank & Trust Co. research head Ildemarc C. Bautista urged the central bank to raise the cap given a broadened definition of real estate exposure.

The BSP last August tightened its monitoring of real estate lending by setting new rules.

Banks were required to report not just real estate loans but also investments in securities that finance real estate activities such as property acquisition, construction and development as well as buying/selling and rental/management. Banks must also include loans for socialized and low-cost housing developments, which were previously exempted from reportorial requirements.

Counting just real estate loans, banks only extended P703.2 billion in 2012, 17% of total loans.

"The 20% cap refers to real estate loans only while the new reportorial requirements refer to overall real estate exposures. It’s natural therefore to consider a higher cap to account for the expanded coverage," Metrobank’s Mr. Bautista noted.

Central bank Governor Amando M. Tetangco, Jr. has hinted that this could be accommodated to account for the new definition as well as developments in the property market since 1997, when the limit was first introduced.

Industry players said there were no signs of overheating. While property demand is robust, they said it was structural in nature and not speculative.

Overseas remittances and outsourcing revenues continue to boost the economy, creating employment and wealth for more, BDO Unibank, Inc. chief market strategist Jonathan L. Ravelas said. BDO Capital & Investment Corp. President Eduardo V. Francisco added that lower interest rates and longer loan maturities were also making it affordable to purchase homes.

Banks, he pointed out, are better off lending for real estate, rather than offering car financing and credit card services, since "borrowers will do everything to protect their home." Housing loans are also secured by collateral, he noted.

Other consumer loans and credit card receivables proved riskiest for banks last year, with 13.04% and 11.13% of loans non-performing. Only 4.64% of auto loans went bad, while housing loans had the lowest ratio at 4.12%.

The BSP keeps a close watch on the property market since it was ground zero during the 1997 Asian financial crisis and the 2008 global economic crisis.