By Joann Santiago
MANILA, Feb 24 (PNA) — The health of the Philippines’ banking system has, time and again, proven itself.
In the recent global financial crisis, resiliency of the country’s banks enabled the country to weather the economic crunch.
This is the reason why the Bangko Sentral ng Pilipinas (BSP) continue to implement reforms to further enhance the system and help it face challenges ahead.
Last year, the central bank did stress tests on bank’s real estate exposure based on the data available at the end of the third and fourth quarter of 2014.
Under the stress tests, banks are required to write-off 25 percent of their real estate exposure.
They also need to have a minimum capital threshold of a six percent common equity Tier 1 (CET1) ratio and a 10 percent total capital ratio after taking into account the effect of stressed losses on the financial institution’s capital.
Banks that fail to meet the requirements will be given 30 days to explain why it failed to meet the new regulations.
BSP Governor Amando Tetangco Jr. on Tuesday said the various tests conducted on the banks showed that the financial institutions remain compliant to regulatory requirements and are generally strong.
”They remain above the minimum capital requirement,” he told reporters after the Management Association of the Philippines’ (MAP) general membership meeting in Makati City.
The central bank chief said some banks have shown capital that are already near the minimum.
”They are still above (the minimum requirement). They still meet (the capital requirements) but they can still explain why they pick their portfolio scheme,” he said.
Tetangco said discussions and consultations between the BSP and the banks continue to address issues and help improve the system.
Asked on whether the banks that are near the threshold are threats to the system or may start a property bubble, Tetangco said no.
”In fact, the backlog on low cost (housing) is rising,” he said.
Earlier, Tetangco said the stress test requirements were approved to “to strike a balance between supporting the social agenda for housing and shelter on one hand and the prudential oversight over bank exposures.”
He stressed that the BSP does not need to implement measures that other central bank implemented such as putting a cap on bank’s real estate exposure, lower the loan-to-value ratio or put higher taxes on real estate loans to address possible asset bubble.
Asset bubble forms when prices of specific asset classes rise uncontrollably because of over excess demand.
Tetangco said there is no need to limit banks’ real estate exposure if these institutions have the capacity to cover its exposure in time of “stressed conditions.” (PNA)