Local banks pass stress tests – BSP

MANILA, Philippines - Local banks passed the regulator’s stress tests assessing the impact of possible losses from their exposure to the real estate sector, Bangko Sentral ng Pilipinas Governor Amando M. Tetangco Jr. said yesterday.

“Based on the results, our banks are seen to be able to withstand plausible stresses,” Tetangco told the audience at the Management Association of the Philippines’ general membership meeting.

The central bank in July last year required banks to undergo a stress test to evaluate the impact of the exposure in the property sector once borrowers fail to pay their loans.

Under BSP Circular 839, banks should be able to keep a common equity Tier 1 capital ratio of at least six percent and a minimum risk-based capital adequacy ratio of 10 percent even if 25 percent of a lender’s exposure to the property sector has been written off.

Tetangco said banks comfortably passed the test although a number had figures too close to the required levels.

“But they are still above (the minimum requirements),” he said, adding “there’s a continuing regulatory discussion and consultation between the BSP and these banks.”

The stress tests covered banks’ exposure to the real estate sector as of June and as of September last year.

Latest central bank data showed banks’ real estate exposure went up 23 percent to P1.159 trillion as of September last year. This exposure was made up of P977.085 billion in loans and P181.882 billion in investments to the sector.

Aside from the real estate stress tests, the central bank in 2012 tightened reportorial requirements of banks with regard to their exposure to the property sector.

The reporting system was expanded to cover loans to developers of socialized and low-cost housing, and to individuals, and credit supported by non-risk collaterals. 

At the same time, banks were asked to report investments in debt and equity securities financing real estate activities.

Meanwhile, Tetangco said banks also passed stress tests on market risks to determine if an increase in interest rates abroad and the depreciation of the peso will significantly impact local lenders.