The Monetary Board, the policy-making body of the Bangko Sentral ng Pilipinas, increased the real estate loan limit of universal and commercial banks from 20 percent to 25 percent.
“The increase translates to additional liquidity for real estate lending amounting to around P1.2 trillion based on end March 2020 numbers,” BSP Governor Benjamin Diokno said Thursday.
Diokno said the measure aimed to support the growth in productive sectors of the economy amid the COVID-19 situation, including the real estate activities. It also encourages bank lending to households for the acquisition or construction of a residential real estate property.
Prior to the amendments, U/KBs were required to comply with a real estate loan limit of 20 percent of their total loan portfolio, net of interbank loans. The real estate loan limit has been increased to 25 percent.
Universal and commercial banks and their subsidiary thrift banks are also required to comply with the real estate stress test limits, after assuming a 25 percent write-off of real estate exposures, on both solo- and consolidated basis: 10 percent capital adequacy ratio and 6 percent common equity tier 1 capital ratio and 10 percent CAR and 6 percent Tier 1 ratio (for TBs that are not subsidiaries of U/KBs).
Under the new guidelines, the methodology for computing a bank’s REST limits was revised to exclude residential real estate loans to individuals for own occupancy and foreclosed real estate property.
The REST limits are implemented as soft limits such that a bank may maintain exposures to real estate for as long as it is able to demonstrate ability to manage risks.
The forthcoming guidelines reinforce this approach by relating assessment of risks by a covered bank on its real estate exposure to its Internal Capital Adequacy Assessment Process or capital planning process. This ensures that a holistic approach is adopted by banks in the management of their risks vis-à-vis their capital position.
Union Bank of the Philippines president and chief executive Edwin Bautista said the increase in loan limit would augur well for the construction industry.
“Great for people looking at housing loans and will help real estate companies finish their projects. Construction has a strong economic multiplier effect,” Bautista told the Manila Standard in a text message.
Results of the Second Quarter 2020 Senior Bank Loan Officers’ Survey released in July 2020 showed that most of the respondent banks (55.6 percent) reported that overall credit standards for commercial real estate loans (CRELs) tightened during the period.
Meanwhile, the diffusion index approach continued to point to a net tightening of overall credit standards for CRELs for the 18th consecutive quarter.
Respondent banks cited a less favorable economic prospects and a deterioration of borrowers’ profiles as major factors for the tightening of overall credit standards for the said type of loan.
Over the next quarter, respondent banks anticipate tightening their credit standards for commercial real estate loans based on both the modal approach and DI-based results.
Most of the respondent banks reported unchanged demand for commercial real estate loans in the second quarter, while DI-based results indicated a net decrease in loan demand.
“Over the next quarter, a higher number of respondent banks anticipated a generally steady loan demand in real estate loans. DI-based results, meanwhile, pointed to expectations of a net decrease in demand for CRELs due largely to anticipated deterioration in customers’ economic outlook,” results of the survey said.
