Banks’ Real Estate Exposures Reviewed

By LEE C. CHIPONGIAN

November 26, 2012, 5:56pm

The Bangko Sentral ng Pilipinas (BSP) is currently studying proposals to adopt a case-to-case basis for banks’ real estate exposures depending on capital base.
As part of prudential measures, banks are imposed a 20 percent limit of its total loan portfolio as credit to the real estate sector. Most banks however do not reach this limit, some are exposed only by as much as 15 percent of total available credit.
BSP sources said changes to the rules will not only adjust real estate exposures against a bank’s capital but also consider the entity’s single borrower’s loan limit. How much credit released to the real estate sector will also be measured against adequate capital and related risks.
ENJOY GOOD LIFE + INVESTMENT, CLICK HERE   
BSP Deputy Governor Nestor A. Espenilla Jr. in the meantime said that the revisions made in the way the central bank captures real estate exposure data by including investments in debt and equity securities and by expanding the scope of activities that are real estate-financing related, are yielding information that may warrant a review of banks’ real estate exposures.
“As the data on real estate exposures of thrift banks industry to residential real estate and socialized housing get collected systematically along-side that of universal and commercial banks, we are looking to relate real estate exposures to banks’ capital base rather than just as a portion of the loan book,” Espenilla said in a recent gathering of thrift banks. “This can then be the basis for re-visiting existing prudential limits as may be necessary.”
Based on the recent amendments on real estate loans’ data, the inclusion of all loans, investments in debt and equity securities are now counted as a bank’s real estate exposure.
By BSP definition, real estate activities are activities that include construction and development of real estate projects as well as other ancillary services like buying and selling, rental and management of real estate properties. This is a wider definition from the original circular which limits real estate activities to the acquisition, construction and improvement of real estate property.
The country’s large-capitalized banks and some big thrift banks reported real estate exposures worth P561.6 billion as of end-June, up 18.9 percent year-on-year and 4.4 percent from the previous quarter ending in March.
The 38 universal/commercial banks accounted for 77.3 percent of total exposure or P434 billion while 22.7 percent or P127.6 billion are from the 71 thrift banks.
Majority of the industry’s real estate exposures are real estate loans, about 97.3 percent of total while the remaining 2.7 percent are investments in securities issued by real estate corporations.
Espenilla said earlier that the objective of revising real estate exposures’ data is to improve what are currently being reported by the banks and the ratio of the real estate loans to overall loan portfolio.
To implement the new rules, the BSP is requiring all universal/commercial and thrift banks and their trust departments to submit a quarterly expanded report on real estate exposures on a solo- and consolidated-basis. The first report should use the fourth quarter data for 2012.