BSP issues new rules that further limits banks’ 'real estate exposure'

The Bangko Sentral ng Pilipinas decided to put limits on individual housing loans as well as on corporate loans intended to fund construction of socialized and low-cost housing. In addition, the BSP has agreed to put limits on banks’ ability to purchase of bonds and stocks sold by property firms. 

The BSP currently requires banks to keep their “real estate exposure” to a maximum of 20 percent of their total loan portfolio. 

BSP Governor Amando Tetangco Jr. explained that under the new rules approved by the BSP’s Monetary Board, the following shall be included in the computation of “real estate exposure”: investments by banks in bonds and stocks issued by property firms, housing loans extended to individual borrowers, and loans extended to corporate borrowers and that are intended to fund development of low-cost and socialized houses. 

Previously, only loans to property developers are included in the computation of real estate exposure. 

The limitations are intended to guard against a potential asset price bubble in the real estate sector. Threats of such a bubble have been raised amid significant growth in bank lending supportive of purchases of residential and commercial real properties.  

Tetangco told reporters in an ambush interview on Thursday that, so far, there are no clear indications that an asset price bubble could happen soon. However, he said, putting additional limits to banks’ real estate exposure will help ensure an asset price bubble is prevented. 

An asset price bubble is a phenomenon where significant demand for assets, such as real properties, leads to a sudden and steep rise in prices. Economists said “bubbles” must be avoided because it is normally followed by “bursting” of bubbles that could destabilize an economy. 

When a bubble bursts a sharp increase in asset prices significantly dampens demand, which then causes a steep drop in prices. A sharp drop in real estate asset prices, such as what happened in the late 1990s, could hurt not only property owners but also banks, which hold real properties as collateral to loans they extend. A decline in property prices reduces the ability of banks to recover losses from loan defaults. — DVM, GMA News