MANILA, Philippines - The Bangko Sentral ng Pilipinas has introduced stricter rules on banks’ real estate exposure to ensure that lenders have enough capital to absorb any potential losses.
“The new measure does not reflect any imminent vulnerability among banks with exposures to the real estate sector,” the central bank said in a statement.
“Instead, the measure simply reinforces the prudential policy that banks must have sufficient capital to absorb any potential shock on its credit exposures,” the BSP said.
The pre-emptive macroprudential policy measure approved by the Monetary Board requires stress tests for banks to determine if their capital will be enough to absorb credit risk that may arise from their exposure to the property sector.
The BSP explained that universal, commercial, and thrift banks will need to meet a capital adequacy ratio of 10 percent of their qualifying capital following the stress test results.
Moreover, universal and commercial banks, along with their thrift bank subsidiaries will also need to keep a Common Equity Tier 1 level of at least six percent of their qualifying capital. Stand-alone thrift banks, meanwhile, are required to maintain a Tier 1 ratio of six percent of their qualifying capital.
“Using stress tests as a prudential measure is in keeping with the tenets of the international standards set under the Basel Accord,” the BSP said.
“These stress tests are also preferred over absolute limits because they do not prejudice the development of the real estate industry. Instead, banks can have greater exposures to real estate for as long as they manifest their increased ability to absorb these risks vis-a-vis their capital position,” the central bank added.
Banks that would not be able to comply will need to explain formally to the BSP why they should not be given any further remedial action.
The central bank said that if it should find an explanation enough, the bank will also be asked to submit an action plan within 30 days that will detail its proposition on meeting the stress test limit within a reasonable timeframe.