The Bangko Sentral ng Pilipinas (BSP) disclosed that the property exposure of banks exceed the 20%-cap set during the Asian financial crisis, hitting 20.86% last year. The exposure is on the real estate loans as a proportion of total loan portfolio.
In a news article, Mr. Lorenzo Tan, the president of Bankers Association of the Philippines, said that even the data exceeded, it is more important to monitor the level of non-performing property loans (loans that are unpaid 30 days after the due date) which continued to remain stable at just 3.7% of the total.
Despite of the exposure breaking the regulatory limits, the BSP and the banks said that there is no real estate bubble that will happen and is far from happening.
“Exposure is still okay. We still have structural demand from new jobs and household formation. Only when these numbers exceed acceptable norms, it will be time to impose macro-prudential measures to down the market,” he said.
BSP will create a new regulation to further limit the exposure of banks to the real estate sector in response to the tightening concerns that tightening real-estate regulations in neighboring economies such as China, Singapore and Hong Kong could be pushing exploratory demand to the Philippines.
These countries issued tougher real-estate regulations because of the risk of asset price bubbles and one of their regulations is to impose higher taxes to limit the buyers on the number of properties to buy.
BSP is monitoring the real estate market after bank loans and investments surged to a record high and this spurned developers to build more homes. The current BSP regulation states that banks are required to limit their real-estate exposure to 20 percent of their total loan portfolio. Monitoring the property loans data is needed to avoid a real estate bubble.
BSP’s new regulation, which would be released soon, aims to limit banks’ real-estate loans and investments—which include housing loans granted to individuals, credit extended to property developers and holdings of securities issued by real estate firms—to a certain percentage of their capital.
According to BSP Governor, Amando Tetangco, some of the funds of the real estate developers came from abroad but they can’t speculate how much the fund is. “This is the direction the BSP is taking: To reference real-estate exposure of banks to their capital,” he said.
Even he said that the supply of real properties in the high-income market could now be exceeding demand, the overall market supply remained below total demand because of the huge backlog in housing units for the low-income segment.
BSP Deputy Governor Nestor Espenilla said that their cause of concern is the rapid growth of credit and stated that BSP “is very mindful of seeing the foundation of an asset bubble that can burst and create dislocations in the economy.”
Deputy Governor Diwa Guinigundo said that “There could be some surplus in the upper end of the market. On the more significant parts of the market like the low-cost, socialized and medium-cost, there are no signs of a bubble formation.”
It’s the high-end segment that needs to be looked on and see if there’s a bubble is developing, says SMDC’s Henry Sy Jr. For middle to affordable properties, it still looks good.
With sources from: Bloomberg, Philippine Daily Inquirer and Philippine Star