The Philippine central bank is firming up steps to avert a property bubble, including requiring banks to undergo a stress test, Deputy Governor Nestor Espenilla said.
“Real estate exposure historically has been the trigger of problems in many banking systems. It’s quite natural for regulators including BSP to be particularly wary of this,” Espenilla, 55, said in an interview in his office in Manila on Thursday. “We’re implementing a risk-based type supervision,” he added, without specifying a timeframe for its introduction.
The central bank is set to introduce a residential property-price index in the first half of the year, Deputy Governor Diwa Guinigundo had said in March, as record-low borrowing costs spur demand for homes and offices.
Property loans and investments rose 6.8 per cent to a record 900.1 billion pesos (US$20 billion) in the second quarter of 2013 from the previous three-month period, the central bank said in November. Property made up 22 per cent of banks’ total loan portfolio, it said. More recent data haven’t been released.
“The BSP is being pre-emptive in addressing concerns of a potential real-estate bubble,” said Michael Wan, a Singapore-based economist at Credit Suisse Group AG.
“The impact on property lending will depend on how stringent the stress test will be. I suspect it will be moderate, as they won’t come out with a rule that will massively curtail real-estate lending.”
“Real estate is prone to asset-price inflation,” Espenilla said. At the same time, “you just can’t tell banks to stop real estate lending; it’s part of their business model,” he said, adding that the proposed measure is designed primarily to test lenders’ ability to withstand a defined stress scenario.
Real estate and construction activity together account for a fifth of the Philippine economy, the Oxford Business Group said in a Feb 27 report.
Policy makers should closely watch the residential market as low interest rates and rising money supply may spur demand, Credit Suisse’s Wan said in February.
“When you look at the economic drivers, they continue to be favorable for our business,” Ayala Land President Bobby Dy said this week, citing the low interest rates, higher remittances from Filipinos overseas and increasing demand from the business-process outsourcing industry.
The central bank in 2012 widened its scope for monitoring the real estate sector. — Bloomberg