Banks’ real estate exposure excludes infra projects – BSP

MANILA, Philippines — Infrastructure projects are not included in the computation of the real estate and project finance exposures of big banks, according to the Bangko Sentral ng Pilipinas.

The BSP issued Circular 976 laying down the changes to the Expanded Report on Real Estate Exposures (ERREE) of banks as well as the submission of the Report on Project Finance Exposures.

According to the BSP, loans to finance the construction, rehabilitation, and improvement of highways, streets, bridges, tunnels, railways, railroad, transport systems, ports, airports, power plants, hydropower projects, canals, dams, water supply, and irrigation are not included in the computation of the real estate exposure of universal and commercial banks.

Other infrastructure projects not covered by the 20 percent limit are telecommunications, land reclamation projects, industrial estates or townships, government buildings and housing projects, public markets, slaughter houses, warehouses, civil work components of information technology networks and data base infrastructure projects, solid waste management, sewerage, flood control, drainage and dredging.

On the other hand, the central bank said purchase by banks of receivables under contract to sell executed between the real estate developers and homebuyers with a recourse basis should be considered loans to real estate developers and should be classified as commercial real estate loans.

Furthermore, the BSP said trust departments of big banks are exempted from the prescribed limit on real estate loans.

Last Sept. 22, the BSP has approved enhancements to the prudential reporting requirements to strengthen oversight of banks’ real estate and project finance exposures.

The reportorial enhancements form part of BSP’s macroprudential toolkit and are being deployed to sharpen the BSP’s assessment of banking system exposures to the property sector.

“The enhancements to banks’ disclosure requirements aim to further diminish risks faced by banks on their real estate and project finance exposures.  A deeper understanding of these exposures will improve the quality of BSP’s financial surveillance process as well as enable the BSP to adopt calibrated policy measures that shall be targeted only towards areas that warrant supervisory action,” the central bank said.

Under the new guidelines, covered banks should report granular information on their real estate loans to mid and high-end housing units, in addition to socialized and low-cost housing.

Moreover, covered banks are now required to report commercial real estate loans as to the underlying commercial project being financed such as residential units, office buildings, malls and factory or plant facilities.