Watches shadow banking, real estate sector
The Bangko Sentral ng Pilipinas (BSP) will adopt the newest international reforms on banks’ leverage and liquidity standards and may require banks to keep liquid assets to keep them afloat for at least 30 days in times of crisis.
BSP Gov. Amando Tetangco Jr. said that the central bank is also keeping closer tab on shadow banking and its connection with real estate sector. The central bank is taking care that banks’ exposure to the booming property market is within prudential limits.
Shadow banking in a broad term means non-banks performing lending functions or banks performing services not covered by regulatory oversight. Shadow banking handles $75 trillion assets worldwide. Shadow banking includes risky investment products, private lending between individuals and pawnshops.
The BSP is “developing surveillance tools to help us detect potential vulnerabilities and the extent and nature of interconnectedness of shadow banking sector and the real estate sector to the financial system,” Tetangco said.
Tetangco said BSP will adopt Basel III related reforms in banks’ leverage ratio and liquidity standards to ensure that the Philippine banking industry is aligned to international guidelines.
“We continue to build on our existing regulatory and supervisory framework to progressively align with international standards as may be appropriate for the situation of our market,” said Tetangco.
“The reforms we will be adopting will help banks define the risk they are willing to take, and will make sure that they have the requisite capital, liquidity profile and funding structure and risk monitoring tools in place,” he said.
One of the Basel III-related reforms that are for adoption is the leverage ratio, which supplements risk-based capital requirements of banks. It is computed as Tier 1 capital over the bank’s total leverage exposure, he said.
Another reform is the liquidity standards, which include two major parts: the liquidity coverage ratio (LCR) and the net stable funding ratio (NSFR).
The central bank governor explained that LCR will require banks to hold sufficient high-quality liquid assets to survive in a period of stress for at least 30 days.
Meanwhile, NSFR intends to establish a minimum acceptable level of stable funding over a one-year time frame, based on the liquidity characteristics of a bank’s assets and activities, and to ensure that long-term assets are funded with at least a degree of stable liabilities, he said.
“As is our practice, any major reforms will continue to be done in consultation with the market,” the BSP governor added.
In terms of shadow banking and the real estate, Tetangco assured that the BSP will continue to develop prudential reports and surveillance tools so that minimum standards for these activities, including risk management guidelines can be established.
The central bank earlier said banks’ exposure to real estate have risen steadily since 2012.
As of the second quarter of 2014, real estate exposure (REE) of universal, commercial and thrift banks in the country broadened by 21.9 percent from the P900 billion exposure recorded a year earlier, and by 6 percent from P1.035 trillion at end-March.
Banks’ REE represented 21.8 percent of their total loan portfolio in June, up from the 21.7 percent posted a year earlier and the 21.3 percent in the previous quarter.