• BSP downplays asset bubble fears

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    Concerns of a real estate bubble have been downplayed by the Bangko Sentral ng Pilipinas (BSP), with a senior official stressing that big banks’ exposure to the sector is still comfortably below the regulatory limit.

    The fear—fostered by continued growth in domestic liquidity and bank lending—does not have any basis based on monitored data, central bank Deputy Governor Diwa Guinigundo told reporters on Monday.

    Using both Bank of International Settlements methodology for judging whether the situation is dangerous or not and International Monetary Fund identification of possible asset bubbles, Guinigundo said tests would show that the Philippines was far from the “danger level.”

    “We have a maximum ceiling on the loan portfolio which is 20 percent … I think the last numbers that we saw was about 17 percent to 18 percent,” he said.

    Besides adhering to international standards, Guinigundo said monetary authorities were also doing their part with regard to monitoring banks’ activities in the real estate sector.

    “I think we need to remember that the BSP decided to issue an advisory, a circular to the banks requiring them a few things,” he said.

    “[In particular, they are required to] submit data on the redefinition of their exposure to real estate. We have now a more comprehensive definition of the exposure to real estate. It is more dependable.”

    Guinigundo added that banks were also asked to undertake real estate stress tests (REST) to determine whether they could withstand pressures arising from the property market.

    The stress tests would determine whether capital levels were sufficient to absorb credit risk to real estate. Universal, commercial (U/KBs) and thrift banks must meet a capital adequacy ratio (CAR) of 10 percent of qualifying capital after adjusting for the stress test results, while U/KBs as well as their thrift bank subsidiaries were required to maintain a level of Common Equity Tier 1 (CET1) that is at least 6 percent of qualifying capital after factoring in the stress scenario.

    “At this point, we do not see any signs of stress in the real estate sector,” Guinigundo said.
    Lastly, he said developers were now more prudent with their expansion plans.

    “We can also say that we are in touch with various real estate developers — the bigger ones — and it is very comforting to know that our real estate developers have become more prudent, more discreet with respect to their expansion plans…,” Guinigundo said.

    “[T]hey have learned their lesson, they don’t build … as they did in the past. They build towers one at a time,” he added.

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    1 Comment

    1. Andre Westbroook on

      Having viewed properties in Metro Manila, I can say beyond a shadow of a doubt that real estate prices in the city are in bubble territory even before one considers the question marks to do with locations in subdivisions without access to transport, flawed design/architecture and quality of construction materials used.