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The Philippine Property Market Could See Fresh Funds Worth P1.2 Trillion

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Key Points

  • In a statement, Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno stated that the policy-making of the Monetary Board approved an increase from 20 percent to 25 percent on the universal and commercial property lending limit by banks.
  • Diokno said that the increase translates to additional liquidity for real estate lending amounting to around P1.2 trillion based on end-March 2020 numbers.
  • Before the amendments, universal and commercial banks were required to comply with the 20 percent limit of their total loan portfolio, net of interbank loans, for real estate loans.
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After the central bank lifts the cap that financial institutions are allowed to lend to the real estate sector on Thursday, 20 August, the Philippines property market may be able to see more than a trillion pesos in fresh funds.

In a statement, Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno stated that the policy-making of the Monetary Board approved an increase from 20 percent to 25 percent on the universal and commercial property lending limit by banks.

Diokno said that the increase translates to additional liquidity for real estate lending amounting to around P1.2 trillion based on end-March 2020 numbers.

Besides universal and commercial banks, smaller thrift banks are also protected by the relaxing of the rules of limit exposure to property loans—historically one of the main drivers of bank lending and economic development, but also vulnerable to unexpected shifts in market sentiment and interest rate fluctuations.

In a separate statement, the BSP stated the aim of the measure to support growth in the productive sectors of the economy during the COVID-19 situation, including real estate activities.

“It also encourages bank lending to households for the acquisition or construction of residential real estate,” said BSP.

Before the amendments, universal and commercial banks were required to comply with the 20 percent limit of their total loan portfolio, net of interbank loans, for real estate loans.

Such major financial institutions and any of their subsidiary thrift banks, after assuming a 25 percent write-off of real estate exposures on both a standalone and a consolidated basis, are also required to comply with the real estate stress test limits.

These standards are a capital adequacy ratio of 10 percent and a common equity Tier 1 capital ratio of 6 percent for both their subsidiary thrift banks and non-subsidiary ones.

Following the new guidelines, the methodology for calculating the residual property stress test limits of a bank has been revised to exclude residential real estate loans to individuals for their own occupancy and foreclosed real estate property, the BSP said.

The BSP explained that the upcoming guidelines reinforce this approach by relating a covered bank’s risk assessment of its real estate exposure to its internal capital adequacy assessment process or capital planning process that ensures that banks adopt a holistic approach in managing their risk vis-à-vis their capital position.

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