(Corrects second last paragraph to show that data was released
MANILA, June 12 Philippine lenders can have
greater real estate exposure as long as they have enough capital
buffers to stem risks identified in an industry stress test, the
central bank said, as it issued new rules aimed at reducing
risks arising from a growing property market.
The new regulation, which came ahead of a rate policy review
on June 19, is a "preemptive macro-prudential policy measure" to
ensure that banks' real estate exposure remains healthy, the
central bank said in a statement late on Wednesday night.
But it said the new measure "does not reflect any imminent
vulnerability among banks with exposure to the real estate
Stress tests will be conducted under the new prudential
guideline to determine whether banks' capital is sufficient to
absorb credit risk related to real estate lending and
At present, Philippine banks are required to meet a capital
adequacy ratio of 10 percent, higher than a Basel II requirement
of 8 percent.
Under the new rules, banks must meet the same capital
adequacy ratio of 10 percent after adjusting for the stress test
results, the central bank said.
Also factoring in the stress test, universal and commercial
banks and their thrift lending units must have 6 percent of
their qualified capital classified as common equity tier 1
(CET1), or the safest and highest quality capital that can
absorb shocks excluding preferred shares or non-controlling
The CET1 requirement is also higher than a minimum set under
the Basel III framework.
Stand-alone thrift banks must maintain a 6 percent total
tier 1 capital of their qualified capital.
Prior to the new rule, banks' real estate lending was capped
at only up to 20 percent of their total outstanding loans.
"These stress tests are ... preferred over absolute limits
because they do not prejudice the development of the real estate
industry. Instead, banks can have greater exposures to real
estate for as long as they manifest their increased ability to
absorb these risks vis-à-vis their capital position," the
central bank statement said.
Banks which do not meet the new requirements will be required
to explain why they breached the limit. If authorities are not
satisfied with the explanation, the lenders will need to submit
an action plan to reach the proper thresholds within a
"reasonable time frame", the central bank also said.
Last month, Bangko Sentral ng Pilipinas (BSP) Governor Amando
Tetangco said banks will be asked to submit stress test reports
that include an assessment of how interest rate changes affect
their balance sheets in relation to their real estate exposure.
The central bank is also firming up plans to introduce a real
property price index to better monitor the sector.
Banks' exposure to the real estate sector as of end-December
2013 climbed 7.1 percent against the previous quarter to 1.006
trillion pesos ($23.06 billion), central bank data released last
Property-related loans made up slightly more than a quarter
of banks' total loan portfolio.
(Reporting by Siegfrid Alegado and Rosemarie Francisco; Editing
by Kim Coghill)