Banks’ real estate, project finance exposure under tight watch

MANILA, Philippines — The real estate and project finance exposures of Philippine banks have been placed under tight watch by the Bangko Sentral ng Pilipinas (BSP) as debt watchers and multilateral lending agencies have raised the red flag over possible overheating in the economy.

The Monetary Board of the central bank has approved enhancements to the prudential reporting requirements in order 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 dimension 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. 

Debt watchers led by Moody’s Investor Service, Fitch Ratings, multilateral lender International Monetary Fund (IMF) as well as investment banks led by DBS Bank Ltd of Singapore warned the Philippines is now showing signs of overheating.

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.

Universal and commercial banks or big banks are required to submit a new report on project finance exposures including information in terms of type of infrastructure project and project phase. 

The BSP said the report would give the regulator a better grasp of the extent and quality of exposures of big banks to project finance, especially since demand for project finance is expected to increase and gain further traction as the country moves towards achieving its infrastructure goals.

The regulator said the new reportorial requirement would be implemental starting with the quarter-ending June 2018. 

Prior to this, the BSP said a pilot run submission would be made for the reporting period ending March next year. 

The pilot run submission of the revised expanded report on real estate exposures for the quarter-ending March 2018 should be made in parallel with the reportorial template of the expanded report on real estate exposures issued under Memorandum to all banks issued in September 2012.

The BSP said the new measures supplement the existing regulatory framework governing real estate exposures of banks. 

“This framework consists of the real estate loan limit of 20 percent of total loan portfolio, net of interbank loans, as well as the real estate stress test limits which were adopted in pursuit of the BSP’s objective of fostering financial stability,” it added.

Latest data from the BSP showed bank lending grew 19.7 percent to P6.48 trillion in end-July this year from P5.41 trillion in end-July last year. Credit disbursed to the real estate sector surged 18.9 percent to P1.13 trillion while lending to the manufacturing sector grew 12.3 percent to P861.18 billion.