The mandate of the Bangko Sentral ng Pilipinas (BSP) to strengthen the banks’ credit-risk management and tighten their lending standard represents a credit boost for the industry, an international credit-ratings agency said on Thursday.
In a statement, Moody’s Investors Service lauded the central bank’s more recent regulations on credit-risk management, which includes the 60-percent cap on the value of real-estate collateral based on appraisal value and the shift of focus to the borrowers’ ability to pay rather than on collateral.
“The new regulation is credit positive for Philippine banks, because it will require them to cap the value of real-estate collateral and will accelerate loan-loss provisioning for distressed loans. The regulation will also reduce banks’ credit-risk concentration among borrowers in interconnected industries,” Moody’s said.
Earlier this year the central bank issued a mandate for the banks to conduct so-called stress tests on their real-estate exposure, an exercise the ratings agency similarly considers a credit boost for the banking industry.
“Because most Philippine banks are already exposed to real estate through their large conglomerate owners and loans to their affiliates, which are also leading players in the real-estate market, we expect the new regulation to limit banks’ exposure to real estate and related sectors,” Moody’s said.
The central bank also expanded the definition of large exposures to include the banks’ credit exposure to related parties.
“The expanded large exposures definition will limit banks’ exposure to related borrowers whose credit exposures are highly interconnected, such as in the case of real estate lending, where banks are exposed to real estate developers, contractors and other suppliers whose credit risk is linked to the real estate sector,” the credit watcher said.
Moody’s noted real estate loans have grown robustly the past five years on account of robust economic growth and strong demand. Property prices, according to the credit watcher, have also risen 35 percent since 2009 parallel to the continued rise in per capita GDP.
“The limit, in combination with the stress test, will protect asset-quality amid property price volatility,” Moody’s said.