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MANILA, Philippines – A preemptive, macro-prudential policy measure to ensure the banking industry’s continuous healthy exposure to real estate development has been approved by the Monetary Board (MB).
The measure simply reinforces the policy that banks must have sufficient capital to absorb any possible shock on its credit exposures, Bangko Sentral ng Pilipinas (BSP) said.
“The new measure does not reflect any imminent vulnerability among banks with exposures to the real estate sector,” BSP said in a statement.
Stress tests will be conducted under the new guideline to determine whether the capital level of a bank is sufficient to absorb the credit risk to real estate.
Using stress tests is aligned with the international standards set under the Basel Accord. These stress tests are also preferred over absolute limits because they do not prejudice the development of the real estate industry, BSP explained.
“Instead, banks can have greater exposures to real estate for as long as they manifest their increased ability to absorb these risks vis-à-vis their capital position,” BSP said.
Universal, commercial (U/KBs), and thrift banks (TBs) must meet a Capital Adequacy Ratio of 10% of qualifying capital (QC) after adjusting for the stress test results.
U/KBs and their thrift bank subsidiaries will be required to maintain a level of Common Equity Tier 1 or at least 6% percent of QC after factoring in the stress scenario. For stand-alone TBs, however, the relevant measure will be a Tier 1 ratio of 6% of QC.
Banks to be found non-compliant with the new measure will have to explain formally to BSP why they should not undergo further remedial action.
If the BSP finds the explanation insufficient, the bank shall be instructed to submit, within 30 calendar days from date of notification, an action plan so it can meet the stress test limit within a reasonable timeframe.
BSP said it is implementing the measure with providing shelter as a basic need in mind. It also recognizes the continuing growth of the real estate industry in line with national demographic factors.
“Nonetheless, MB believes that this is an opportune time to introduce such measure so that banks will be appropriately guided by the policy direction,” BSP said. – Rappler.com