Philippine central bank orders capital boost for lenders
The Philippines will order lenders to boost capital and cap the value of real estate that can be used as loan collateral to ensure banks gird themselves for increased risk taking.
Bangko Sentral ng Pilipinas approved a minimum capital requirement for larger banks that’s about four times the current level, according to figures supplied by Governor Amando Tetangco. Banks must also cap the collateral value of property at 60 per cent under a new credit standard to be implemented over two years, he said in an e-mailed reply to questions.
The rules come after Standard & Poor’s said this month debt at Philippine companies is rising the fastest among peers in Southeast Asia. Surging lending for real estate amid elevated prices is also stoking concern that asset bubbles are building.
“The current environment naturally attracts more risk-taking by banks,” Tetangco said. “We want to be sure banks have a higher level of capital to absorb the accompanying possible higher levels of shocks.”
Banks’ real estate exposure, or loans and investments tied to property, rose 22 per cent in the second quarter to 1.1 trillion pesos ($24.5 billion) from 900 billion pesos a year ago, according to central bank data. The second-quarter figure was 6 per cent higher from the January-to-March period.
Lenders must have a strong internal policy for controlling concentrations of credit risk, conduct regular stress tests and sufficiently provide for loan-loss allowances, the governor said. Bank directors and senior management must ensure prudent lending, he said.
Banks with more than 100 branches must boost capital to at least 20 billion pesos, he said. That compares with almost 5 billion pesos now. New lenders will have to comply immediately with the increased level, while existing banks will be given five years, Tetangco said. The capital rules are separate from global Basel III requirements, he said.
“This increased scrutiny on banks and focus on ensuring banks are prudent when it comes to lending standards is positive for financial stability,” said Michael Wan, a Singapore-based economist at Credit Suisse Group AG. “Credit growth may slow but it’s not like the central bank is switching off the lights tomorrow. Banks are given enough time to adapt to the new standards.”
For the new credit framework, banks have six months to formulate an action plan and as long as two years to fully comply, Tetangco said.
The revised collateral value for property compares with the current average of 80 per cent, with some loans for low-cost homes allowing as high as 90 per cent. Borrowers of as much as 3 million pesos need not submit income-tax returns and audited financial statements, Tetangco said.
“By discouraging obsession with collateral, the new regulations promote better access to credit by those who are not necessarily collateral-heavy but do have the ability to pay from business operations or other regular cash flows,” he said.
The Philippines will order lenders to boost capital and cap the value of real estate that can be used as loan collateral to ensure banks gird themselves for increased risk taking. Bangko Sentral ng Pilipinas approved a minimum capital requirement for larger banks that’s about four times the current level, according to figures supplied by Governor Amando Tetangco. Banks must also cap the collateral value of property at 60 per cent under a new credit standard to be implemented over two years, he said in an e-mailed reply to questions. The rules come after Standard & Poor’s said this month...
The Philippines will order lenders to boost capital and cap the value of real estate that can be used as loan collateral to ensure banks gird themselves for increased risk taking.
Bangko Sentral ng Pilipinas approved a minimum capital requirement for larger banks that’s about four times the current level, according to figures supplied by Governor Amando Tetangco. Banks must also cap the collateral value of property at 60 per cent under a new credit standard to be implemented over two years, he said in an e-mailed reply to questions.
The rules come after Standard & Poor’s said this month debt at Philippine companies is rising the fastest among peers in Southeast Asia. Surging lending for real estate amid elevated prices is also stoking concern that asset bubbles are building.
“The current environment naturally attracts more risk-taking by banks,” Tetangco said. “We want to be sure banks have a higher level of capital to absorb the accompanying possible higher levels of shocks.”
Banks’ real estate exposure, or loans and investments tied to property, rose 22 per cent in the second quarter to 1.1 trillion pesos ($24.5 billion) from 900 billion pesos a year ago, according to central bank data. The second-quarter figure was 6 per cent higher from the January-to-March period.
Lenders must have a strong internal policy for controlling concentrations of credit risk, conduct regular stress tests and sufficiently provide for loan-loss allowances, the governor said. Bank directors and senior management must ensure prudent lending, he said.
Banks with more than 100 branches must boost capital to at least 20 billion pesos, he said. That compares with almost 5 billion pesos now. New lenders will have to comply immediately with the increased level, while existing banks will be given five years, Tetangco said. The capital rules are separate from global Basel III requirements, he said.
“This increased scrutiny on banks and focus on ensuring banks are prudent when it comes to lending standards is positive for financial stability,” said Michael Wan, a Singapore-based economist at Credit Suisse Group AG. “Credit growth may slow but it’s not like the central bank is switching off the lights tomorrow. Banks are given enough time to adapt to the new standards.”
For the new credit framework, banks have six months to formulate an action plan and as long as two years to fully comply, Tetangco said.
The revised collateral value for property compares with the current average of 80 per cent, with some loans for low-cost homes allowing as high as 90 per cent. Borrowers of as much as 3 million pesos need not submit income-tax returns and audited financial statements, Tetangco said.
“By discouraging obsession with collateral, the new regulations promote better access to credit by those who are not necessarily collateral-heavy but do have the ability to pay from business operations or other regular cash flows,” he said.
