Philippine banks will be instructed by the Central Bank to shield themselves from a spike in recent risk taking by boosting capital and capping values of real estate being used as collateral, Bloomberg reported on Monday.
The Philippine Central Bank, Bangko Sentral ng Pilipinas, gave the OK for minimum capital requirements for larger banks to boost capital to around four times its current level, according to Bloomberg whom cites the Philippine Central Bank Governor Amando Tetangco.
Philippine banks will also be required to cap the collateral value of property at 60% according to a new credit standard that will be implemented over the next two years, the Central Bank Governor said, according to Bloomberg.
The new measure comes following a report from Standard & Poor’s that debt levels from Philippine companies has risen at the fastest among its Southeast Asian peers in October.
In the Philippines, a surge in lending in real estate amid high property prices has stoked concerns that asset bubbles are building.
“The current environment naturally attracts more risk-taking by banks,” Central Bank Governor Tetangco said. “We want to be sure banks have a higher level of capital to absorb the accompanying possible higher levels of shocks.”
Philippine banks with over 100 branches must boost capital to at least 20 billion pesos, Tetangco said, compared to a level of around 5 billion pesos now, or 400%.
New lenders will need to comply immediately with the increased level, however existing banks are going to be given five years, Tetangco said.
In regards to new credit framework, the banks will have six months to draw up an action plan and will have to fully comply within two years, Tetangco said.
“By discouraging obsession with collateral, the new regulations promote better access to credit by those who are not necessarily collateral-heavy but do have the ability to pay from business operations or other regular cash flows,” he said.
Source: Bloomberg
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