BSP may require banks to provide additional cover for foreclosed assets

The Bangko Sentral ng Pilipinas (BSP) is planning to require banks to set aside additional provisioning for foreclosed assets on the day such assets are secured from borrowers who defaulted on their obligations.

Currently, banks are only required to set aside reserves for non-performing loans, which are reserved aside from profits. Foreclosed assets are only covered by reserves on the sixth year that these remain idle or unsold.

While industry analysts said the new requirement will further erode the banks’ profitability, the BSP is convinced the accumulation of foreclosed assets can also affect the bottom line of banks because they are keeping assets that can be liquidated.

BSP Deputy Governor Alberto Reyes said the plan is one of several options being considered to encourage banks to limit their holdings of foreclosed collaterals or real and other properties owned and acquired (ROPOA).

"We could require some provisioning, for example of 10 percent of total foreclosed assets on ROPOA that are secured on the first day the assets were taken over by the banks."

Another option is to put a cap on ROPOA of banks as a percentage of total assets. "Right now there is no cap on ROPOA, the industry average now is 4.5 percent of total assets. We will look at the practice of other countries," Reyes said.

At the same time, Reyes said the BSP also wants to tighten the requirement for the appraisal of foreclosed assets.

"Banks are required to book these assets at market values, so they incur losses if these remain in their custody," Reyes said.

Reyes said the BSP is considering these measures because banks are not moving to take out their ROPOA from their books.

As of end-February, local commercial banks’ ROPOA holdings totaled P130.8 billion, representing a 0.8 increase from the previous month.– Rocel Felix