Banks allowed to raise loan limit for real estate

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) has raised the real estate loan limit of big banks, releasing P1.2 trillion in additional funds which can be borrowed by the property sector.

BSP Governor Benjamin Diokno said the Monetary Board has increased the cap on real estate loans by universal and commercial banks to 25 percent from 20 percent of total loan portfolio.

“The increase translates to additional liquidity for real estate lending amounting to around P1.2 trillion based on end-March 2020 numbers,” Diokno said.

According to the BSP, the exposure of banks to the real estate sector is in line with the BSP’s regulation which limits banks’ exposure to the sector to 20 percent, while the ratio of overall non-performing real estate loans remains below two percent.

Despite the aggressive easing measures by the BSP and the reopening of the economy with the shift to general community quarantine in June, credit growth slowed for the third straight month to 9.6 percent to P9.28 trillion. This was the slowest credit growth since the 9.3 percent recorded in October last year.

According to the BSP, bank disbursements to the real estate sector expanded by 16.8 percent to P1.72 trillion and accounted for 18.5 percent of total loan disbursements as of end-June.

Even before the pandemic, the BSP has already implemented various macroprudential measures that would safeguard against property price bubbles.

These include placing a cap on real estate loans and loan-to-value ratio as well as introducing new monitoring tools such as the real estate stress test (REST) and the residential real estate price index (RREPI), helping curb the real estate exposure of banks.

Moreover, the adoption of the countercyclical capital buffer on big banks as well as their subsidiary banks and quasi-banks prevented excessive credit growth.

However, the BSP needs to ensure that the expansion of money and credit, along with fiscal stimulus and low interest rates, will provide underlying support to economic activity without leading to excessive future inflation and contributing to financial stability risks.

Diokno said earlier monetary authorities were not expecting an undue surge in asset price inflation amid the global health crisis.

“Equity and property prices remain broadly in line with market fundamentals and within historical range. The recent slowdown in economic activity due to the pandemic would also tend to dampen asset price movements and is seen to soften market demand,” Diokno said.

The BSP chief also said property prices would still be driven by office space demand from offshore gaming, traditional firms, and business process outsourcing (BPO) in the office segment, while demand in the residential segment would still come from domestic and foreign workers mainly connected to the BPOs, including the Philippine offshore gaming operators.

“While there is persistent demand for residential properties, it would not indicate an asset bubble,” Diokno said.