The Monetary Board (MB) approved a set of measures aimed at enhancing the BSP’s manner of monitoring exposures of the banking industry to the real estate market. The measures supplement the regulatory framework governing bank real estate loans (RELs) under Circular No. 600 dated 4 February 2008.
The new guidelines provide a more comprehensive measure of a bank’s real estate exposure. It now includes loans as well as investments in debt and equity securities, the proceeds of which shall be used to finance real estate activities. Previously, only real estate loans were covered. Furthermore, all loans are counted towards a bank’s real estate exposure. This amends the previous policy of excluding loans granted to individuals to finance the acquisition and/or construction of residential real estate for own-occupancy and those extended to land developers/construction companies for the development of socialized- and low-cost housing, among other things.
For purposes of determining a bank’s exposure under the new rules, real estate activities shall refer to the construction and development of real estate projects as well as other ancillary services like buying and selling, rental and management of real estate properties. The scope of said activities is broader than that under Circular No. 600 which limits real estate activities to the acquisition, construction and improvement of real estate property.
Lastly, consistent with sound risk management practices which espouse the maintenance by a bank of adequate capital that is commensurate to its risks, a bank’s real estate exposure shall be referenced against its adjusted capital, similar to other prudential limits such as the single borrower’s loan limit. Such exposure shall be monitored by the BSP on a bank- and banking group- basis.
In order to generate aggregate data for the banking industry, UBs/KBs, TBs and their trust departments shall be required to submit a quarterly Expanded Report on Real Estate Exposures on a solo- and consolidated-basis, starting with the quarter-ending 31 December 2012, following the revised guidelines on real estate exposures. The submission of the Expanded Report on Real Estate Exposures by UBs/KBs and TBs shall be made in parallel to the Report on Real Estate Exposures that is required under Circular No. 600. Penalties on the willful delay/erroneous submission of reports shall apply to both real estate reports.
Circular No. 600 sets forth a limit on bank RELs of twenty percent (20%) of total loan portfolio, net of interbank loans. Said REL limit as well as the methodology for computing said limit shall remain in effect during the duration of the observation period of the enhanced real estate exposure of banks.