BSP studies adoption of rules in bank mortgages

MANILA, Philippines - The Bangko Sentral ng Pilipinas (BSP) is looking at how to adopt the new international regulation on bank mortgages meant to strengthen oversight on the real estate market.

“We will definitely study the recently released proposed standards on mortgage finance,” BSP assistant governor Johnny Noe Ravalo told reporters on Friday.

The Financial Stability Board, the international body that makes recommendations on the global financial system, issued the new regulations.

“It is still in a proposal stage. There is a paper out there,” Ravalo said.

If adopted, the new rules would complement BSP’s efforts to better regulate lending to the real estate industry, one of the prime causes of the Asian financial crisis in 1997 and the US mortgage crises in 2008.

The standards would cover gauges on “credit quality and mortgage,” specifically on how banks could determine the capacity of a borrower to pay.

Early this year, the central bank issued an order putting uniformity on contract-to-sell (CTS) negotiations for banks, for instance, on who could avail of property loans and what properties could be covered by CTS.

This followed amendments to the rules of Republic Act No. 3765 or the Truth in Lending Act of 2012 which ordered banks to bare real costs, including add-on charges, to their clients.

On mortgage finance, Ravalo said banks would continue to have a free hand on determining their borrowers’ capacity to pay, although the process would likely be benchmarked against common practices.

“On this one, we are still on a review process…These are best practices worldwide and standards tend to be principle based. How they will be issued, that is what we are looking right now,” he said.

“The execution will still be on a bank-to-bank basis,” Ravalo added.

The BSP has tightened its watch on real estate lending, amid a booming economy and flush of capital inflows, on fears bubbles may eventually form on these assets, similar to what happened in the US housing market before the crisis.