BSP Approves Contract-To-Sell Reference Standards For Housing Finance

By LEE C. CHIPONGIAN

November 29, 2012, 7:06pm

The central bank’s Monetary Board has approved the contract-to-sell (CTS) reference standards for housing finance, a move it called a milestone.
 In a statement, the Bangko Sentral ng Pilipinas (BSP) said the prudential measure is a “defining minimum standard” for banks to comply with which ultimately, will strengthen credit underwriting practices for real estate activities.
 “The BSP did not move to formal prescriptive regulations at this stage since market players have defined the guidelines themselves to achieve balance between development and stability objectives,” said the BSP. These guidelines specifically streamline market practice since no common standards had been recognized to-date.
ENJOY GOOD LIFE + INVESTMENT, CLICK HERE   
 The BSP explained that in a CTS transaction, properties are sold to buyers on an installment basis by liquidating real estate developers’ holding of CTS receivables by selling the receivables to banks. The CTS receivables and its sale to banks are referred to as CTS financing. “(This) effectively gives developers a way to get immediate funding out of their receivables,” said the BSP.
 BSP Deputy Governor Nestor A. Espenilla Jr. said the significance of the CTS guidelines is that it will give the BSP a good idea of what transactions are being commonly practiced in house financing. “(This) will guide the industry to maintain high quality standards in housing finance (and) also guide the BSP in assessing the quality of actual practices,” said Espenilla.
 The BSP said banks should either comply or explain any deviation of actual market practices from such standard. “Banks are expected to adopt stronger practices than the standard depending on their customer risk profile,” according to the statement.
 The CTS is a proposal developed by industry associations, mainly the Bankers Association of the Philippines, the Chamber of Thrift Banks and the Rural Bankers Association of the Philippines with the BSP.
 Last August, the BSP approved new policy guidelines in monitoring real estate financing transactions. “The same policy initiative is expected to more closely link real estate exposures to banks’ capital levels,” said the BSP.
 At the moment, the BSP is reviewing prudential limits, for example in the amount of credit banks allot to real estate loans.
 The CTS is a complementary rule since it enhances monitoring of risks from CTS financing. The guidelines also give close scrutiny to the eligibility of homebuyers who can avail of CTS financing.