Bangko Sentral allows big banks to grant more property loans

Metro Manila (CNN Philippines, August 20) — The Bangko Sentral ng Pilipinas has authorized big banks to extend even more property loans to borrowers.

BSP Governor Benjamin Diokno said Thursday that the Monetary Board approved a measure raising the allowed real estate loan limit for universal and commercial banks to 25 percent, higher than the long-standing 20 percent ceiling.

​The move is seen to unleash ₱1.2 trillion worth of credit to borrowers looking to acquire or develop their land. "It also encourages bank lending to households for the acquisition or construction of a residential real estate property," the Diokno said in a statement.

The loan exposure limit seeks to protect banks from the volatilities of real estate, which sometimes sees a spike or dip in property prices. It's a precautionary measure to prevent asset bubbles — or when there's a mismatch in supply and demand for housing units — which triggered the 1997 and 2008 global financial crises.

The relaxed rules require banks to comply with stress tests, which assume a 25 percent write-off of their exposures to the property sector. Banks should be able to maintain the required 10 percent capital adequacy ratio – or enough capital to cover risky exposures – despite increased lending for real property.

Stress test protocols have also been revised to exclude home loans to individuals using a mortgaged property as their residence, as well as foreclosed assets.

Banks and their trust departments had a ₱2.49 trillion exposure to the property sector as of 2019, the bulk of which was through loans worth ₱2.17 trillion. The remaining amount represents bets made on real estate investments.

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Of the loans, ₱1.4 trillion was borrowed for commercial space while ₱764 billion was secured for residential units. The loans accounted for 19.84 percent of the banks' total loan books, hovering close to the old ceiling.

Soured loans, or those left unpaid for at least 30 days past due date, amounted to ₱37.3 billion or 1.72 percent of total bank loans as of December. This is deemed low, but could rise following the economic impact of lockdowns this year due to the COVID-19 pandemic.

Banks have suspended mortgage collections during the lockdown period and gave a 1-month grace period for borrowers to settle their dues ​since quarantine rules have been relaxed. 

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