BSP approves joint venture between BDO, 3 developers

The Bangko Sentral ng Pilipinas (BSP) has approved a joint venture between Banco de Oro (BDO) and three major real estate developers, allowing the bank to take over P200 million worth of bad assets out of its books.

The Monetary Board (MB) approved BDO’s ventures with Sta Lucia, Filinvest and Crown Asia, involving the development of residential subdivisions that the bank foreclosed.

BSP Deputy Governor Nestor Espenilla Jr. told reporters that that BDO had been in the joint venture with the three property developers since 2005 but the bank has only just applied with the BSP to get the assets taken out of their bad assets portfolio.

Espenilla said BDO had foreclosed the properties with a total book value of P200 million.

“But of course the actual market value of the transaction must be significantly different,” Espenilla said.

Espenilla said that following the MB approval, BDO would be able to reclassify the foreclosed properties into performing assets. “That means the bank would no longer have to make capital provisions for them and that is significant,” he said.

Espenilla said the properties were three different residential subdivisions foreclosed by BDO in Laguna, Rizal and Batangas provinces. Tying up with the real estate developers, he said, would allow the bank to turn the asset around.

Espenilla said there was a rapid build up in joint ventures between banks and property developers as banks opted to retain their assets instead of selling them at a discount under the Special Purpose Vehicles Act (SPVA).

Although over P100 billion worth of bad assets have been unloaded so far under the SPVA, the banking industry is still saddled by over P220 billion worth of non-performing assets.

According to Espenilla, however, the upside in the property sector was giving banks the rare opportunity to turn these assets around instead of selling them at a loss to asset management companies.

Espenilla told reporters over the weekend that banks were increasingly developing a preference towards entering into joint venture agreements with property developers to turn around foreclosed properties.

Since it allowed banks to form joint ventures with property firms, the BSP has so far approved two major joint ventures between banks and property development firms worth P2.5 billion. Similar transactions worth P3.5 billion were pending for approval.

According to Espenilla, the BSP expected an increase in these joint ventures as banks move to take advantage of opening opportunities in the real estate market.

“Banks are less inclined to take a discount and more inclined to take advantage of the upside in the real estate sector,” he said.

Despite the expected surge, however, Espenilla said the BSP was not inclined to ease its restrictions on these joint ventures and banks would still be limited to participate only as owners of the properties to be developed.

“That’s their equity in these ventures and they are not going to be allowed to go beyond that,” Espenilla said. “The whole idea is for banks to concentrate on the business of banking, not property development.”

According to Espenilla, these restrictions would also keep banks insulated from any upheavals that might develop similar to the imploding asset bubble that led up to the 1997 Asian financial crisis.

“We’ve given banks the opportunity to take foreclosed assets and make them productive again,” Espenilla said. “But they will not be allowed to use their own funds for the development of these foreclosed properties.”