MACTAN ISLAND: An official of the Bangko Sentral ng Pilipinas (BSP) again allayed fears against asset bubble in the domestic economy.
BSP Deputy Governor Diwa Guinigundo said proportion of real estate credit to gross domestic product (GDP) is rising but it is not at alarming level yet.
“If there are signs the BSP will not hesitate and we will undertake the necessary measures from the monetary policy side and also from the prudential side,” he said.
In 2013, real estate credit to GDP ratio rose by 6.1 percent from 5.5 percent in the previous year.
Amid the rise in the ratio of real estate credit to GDP, expansion of loans extended to the real estate sector posted a slower growth of 22 percent in 2013 from year-ago’s 29.7 percent.
Guinigundo identified several monetary policy measures the BSP can implement once signs of asset bubble begin to crop up.
These measures include increase in banks’ reserve requirement (RR), adjustment of the key policy rates, and adjustments in the interest rate of the special deposit account (SDA) facility.
In 2013, central bank’s policy-making Monetary Board (MB) cut the interest rate of the BSP’s SDA facility to a unitary two percent from 3.5 percent.
Rate of the SDA facility was previously pegged against the key policy rates, which is now at record-low 3.5 percent for the overnight borrowing or reverse repurchase (RRP) facility and 5.5 percent for the overnight lending or repurchase (RP) facility.
This was made to discourage banks from using the facility as an investment option.
The facility was put in place as a monetary policy tool to siphon off excess liquidity in the domestic economy and not as an investment vehicle.
Relatively, the Board recently hiked banks’ RR by one percentage point across the board to address strong expansion of domestic liquidity, which is currently at 30 percent level.
To date, the RR for universal and commercial banks (U/KBs) is 19 percent while it is seven percent for thrift banks and five percent for rural banks.
For the prudential measures, the BSP’s options are bringing down the maximum ceiling of banks real estate exposure and adjusting the loan to value level among others.
“We have not done those (prudential measures) precisely because at this point the numbers do not warrant those measures,”he said but stressed that “we are watching and if there is evidence that there is a need for those measures then we will do that.” PNA