By Lee C. Chipongian
The Bangko Sentral ng Pilipinas (BSP) will issue a new stress test for banks’ real estate exposures to further scrutinize its interconnectedness and detect build-up, if any, of systemic risks in the future.
BSP Assistant Governor Johnny Noe E. Ravalo for the Office of Systemic Risk Management said the upcoming stress test – which will be a survey – is going to be done in partnership with the Housing and Land Use Regulatory Board (HLURB) as the quasi-judicial agency in charge of real estate and housing development.
Ravalo said the BSP needs a more granular reporting of the real estate development, the locations of these development and areas where there may be more supply than demand.
“We could really benefit from more granularity because (as it is) data that is being reported today are just numbers (but) we are trying to work with HLURB (to see which areas) are over and some that are under, in terms of saturation,” he said.
Ravalo said the central bank is aiming to have stress testing on all of a bank’s portfolio or its entire portfolio and with HLURB’s help, they could look at property exposures more granurally as per locations, for example. “(And) with that type of granularity, we will know the pipeline, the demand, and the supply. Are there any pending issues so we will have better disaggregation? Such granularity gives us fairer conclusion,” he emphasized. “The worst thing we want to make right now – the worst mistake – is to make a hasty conclusion.”
So far, the BSP and HLURB have worked out the detals of the real estate survey. “We’re hoping that HLURB will say ‘go’ as the real estate regulator and they will deploy (the survey) to the developers so we can get fresh data from them,” said Ravalo.
He said the BSP wants to deepen its understanding of how the property market is “interconnected with everybody else.”
The real estate sector is one of five economic activities identified by the BSP as dominating about 60 percent of total bank lending. It said in its 2017 Financial Stability Report (FSR) that this is a concern since the “fairly heavy concentration makes the banking system prone to risks.”
“Particularly for the real estate industry, balance sheet data of major real estate developers show a collective increase in real estate inventories since 2013,” according to the FSR. The data was analyzed from 19 banks culled by the BSP.
Based on the BSP’s Residential Real Estate Price Index (RREPI), with the additional supply in the sector, this “supply-side factor suggests that the vulnerabilities may not necessarily be evident in sharp upward price movements.”
The RREPI noted that real estate prices have increased across all types of housing units, except for prices of condominium units but “some caution should nonetheless be taken since risks may come from the build up of supply rather than an outright price bubble,” the FSR said.