New BSP reporting rules for real estate loans will help flag risks – Fitch Ratings

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The Bangko Sentral ng Pilipinas main building in Manila. REUTERS/Romeo Ranoco/File Photo

MANILA – Fitch Ratings on Thursday cited the Bangko Sentral ng Pilipinas’ (BSP) new requirements for enhanced reporting from banks on property lending and project finance, saying this will help detect risks from sustained strong loans growth.

Last week, the central bank said its policy-making Monetary Board (MB) has approved the enhancements on the prudential reporting requirements to check banks’ exposures on real estate and project finance.

Banks are now required to report “granular information” on their mid- and high-end housing units in addition to socialized and low-cost housing.

Also, banks must report commercial real estate loans in terms of underlying commercial project like residential units, office buildings, malls, and factory or plant facilities.

Universal and Commercial Banks (U/KBs) are also required to heed the new Report on Project Finance Exposures that will detail type of infrastructure projects and project phase.

These new reporting requirements will start in the second quarter of 2018 although a pilot run will be held in the first quarter of next year.

The BSP said “a deeper understanding of these exposures will improve the quality of BSP’s financial surveillance process as well as enable the BSP to adopt calibrated policy measures that shall be targeted only towards areas that warrant supervisory action.

Fitch, in a statement, said these new reporting requirements “may make banks more cautious in lending to these sectors, but it does not amount to regulatory tightening to curb growth.”

It pointed out that when the BSP placed motor-vehicle loans under the same reporting requirements in 2015, growth of loans for this sector continued, with the June 2017 expansion at 24 percent.

“High system-wide loan growth could raise the risk of a credit bubble if it continues,” it said, but also noted that “credit growth does not so far appear to be fueling asset bubbles.”

The credit rater said bank loans have risen double at around 18 percent on the average compared to the growth of nominal gross domestic product (GDP) in the last four years.

It said lending to the private sectors is still low at 45 percent of domestic output as of end-2016 but on sustained growth from 32 percent in end-2011.

“(This) is likely to climb further in 2017,” it said.

It noted that majority of the banks “appear to have maintained acceptable lending standards over this period and the NPL (non-performing loan) ratio has remained benign at around 2 percent.”

“But in such a strong growth environment there is a risk that “blind spots” may develop, where downside risks may not be adequately priced into lending decision,” it said.

“Risks could crystallize into losses if, for example, the economy slows or interest rates rise significantly,” it added.