Moody’s says BSP move credit positive for banks

MANILA, Philippines - The Bangko Sentral ng Pilipinas’ recent measure aimed at strengthening banks’ credit risk management and tightening lending standards is credit positive for local lenders, Moody’s Investors Service said yesterday.

“The new regulation is credit positive for Philippine banks because it will require them to cap the value of real estate collateral and will accelerate loan-loss provisioning for distressed loans. The regulation will also reduce banks’ credit risk concentration among borrowers in interconnected industries,” Moody’s said in its Credit Outlook report published yesterday.

Mandated revisions to banks’ credit risk management framework include focusing on borrowers’ cash-flow analysis and ability to pay instead of collateral. Banks were also ordered to develop internal risk rating systems and stress testing policies to better assess their credit risk exposures.

The new rules also encourage lending to the micro and small firms as borrowers will be exempted from some documentary requirements.

Moody’s pointed out that the new measures follow a stress test put in place in July in assessing banks’ exposure to the property market.

“Because most Philippine banks are already exposed to real estate through their large conglomerate owners and loans to their affiliates, which are also leading players in the real estate market, we expect the new regulation to limit banks’ exposure to real estate and related sectors. The limit, in combination with the stress test, will protect asset-quality amid property price volatility,” Moody’s said.

The BSP has also required banks to limit credit exposures to certain segments and diversify their portfolio to mitigate risks.

Banks should now review their current practices within six months from the effectivity of the new rules and submit an action plan for the migration to a new credit risk management framework within two years, the central bank said.

Bankers Association of the Philippines president Lorenzo V. Tan said that the credit risk management principles ordered by the BSP have already been in practice “for a long time.”

“These do not necessarily deviate from your current credit criteria and will basically strengthen the industry as a whole. Lenient supply of money creates asset bubbles. Focusing on cashflow lending will ultimately create structural demand, job creation and healthy financial system,” Tan, who is also president and chief executive officer of Rizal Commercial Banking Corp., said.

Antonio C. Moncupa, president and CEO at East West Banking Corp., said for his part the rules are not expected to have a significant impact on credit growth.

“I don’t think there will be an adverse effect on credit growth in general as most banks are already familiar and comfortable with the principles and practices prescribed by the circular,” Moncupa said.