More rules needed to protect banks from property bubble

MANILA - The Bangko Sentral ng Pilipinas (BSP) needs additional preemptive measures to secure the banking sector, more specifically the banks’ rising exposure to the real-estate sector for when prices drop and everyone heads to the exit, an economist from an international bank said.

In latest commentary and views on the market, Joey Cuyegkeng, chief economist and director at the Manila unit of the Dutch financial services giant ING, commended the recent prudential rules that the central bank has adopted as part of a larger package to manage the risks attendant to the banks’ exposure to the property sector.

But because the banks continue to lend more in support of even more real-estate projects and investments, Cuyegkeng said the BSP may need to put up additional measures to safeguard banks from risks down the line.

Latest data from the central bank show the banking sector’s real-estate exposure rose 22 percent in June compared to the same period last year. There is a rule limiting the banks’ exposure to real estate to no more than 20 percent of their loan portfolio, and new provisions in recent months mandating that in the event of a real-estate write- down, lender capital adequacy must remain above 10 percent, among other measures. Bank loans to the real-estate sector aggregated P924 billion as of end-June this year.

“Part of the increase in bank loans to the sector is due to the expanding outsourcing industry, which also requires residential and commercial spaces. CBRE still expects a strong real-estate sector beyond 2016,” Cuyegkeng said.

“The BSP also believes that property indicators do not point to a bubble. But risk management may require additional BSP measures to safeguard the banking sector, in our view,” he added.

Cuyegkeng also said the lower domestic money supply remain supportive of the banking sector.

“We get Philippine August bank loans and M3 growth today, Friday. We support the BSP’s view that M3 growth is on a downtrend toward the low teens or even high single-digit growth [before the end of the year],” Cuyegkeng said. The central bank recently implemented a real-estate stress test, prudential measure for banks to beef up their protection against their exposure on the real-estate sector and possible risks that may arise from it.

Source: by Bianca Cuaresma | Business Mirror

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