THE central bank’s mandated limit on big banks’ real estate loans will not include loans and securities that will finance public infrastructure projects, in a bid to boost the government’s “Build, Build, Build” (BBB) program.

Circular No. 1093 signed by Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno raised the limit on real estate loan exposure to 25% of banks’ total loan book from the current 20%, a move seen to unleash P1.2 trillion in additional liquidity for real estate lending.   

“Real estate exposures shall not include loans and investments in debt and equity securities the proceeds of which are used to finance infrastructure projects for public use…,” the circular read.

BSP Deputy Governor Chuchi G. Fonacier said in a text message the provision will “support funding for the Build, Build, Build program of the government.”

As the coronavirus crisis plunged the economy into a recession, the government is betting its aggressive infrastructure push will help drive recovery in 2021.

The BBB program currently includes 92 infrastructure projects worth P4.4 trillion.

In the circular, BSP said a real estate stress test (REST) will be done to gauge the bank’s exposure to commercial real estate loans, specifically to individual households, sole proprietorships, land developers and construction companies.

The prudential limit will also cover loans extended to corporate borrowers with real estate-related loans such as brokers, lessors, property management companies, and holding companies, among others.

“A universal/commercial bank which does not meet either or both the REST limits shall incorporate assessment of risks from this exposure in its internal capital adequacy assessment process (ICAAP),” it said.

The BSP has earlier said the new guidelines will exclude residential real estate loans to individuals for own occupancy and foreclosed real estate property.

The rule to increase loan limits for the real estate sector is a complementary move after the central bank maintained key policy rates last week, said Colegio de San Juan de Letran Graduate School Dean Emmanuel J. Lopez.

“The move is meant to stimulate investment in the real estate area which as of late experienced a big blow because of the pandemic,” Mr. Lopez said in a text message.

The real estate sector makes up about 18.5% of total loans in June, slightly bigger than the 17.4% share in the same month of 2019 and the 18.4% in May, BSP data showed.

Outstanding loans extended by big banks for the sector was at P1.72 trillion in June from P1.47 trillion a year ago, data from BSP showed. Credit for real estate activities increased 16.8% year on year during the month, slower than the 19.6% pace in May.

Meanwhile, Mr. Diokno on Monday said it’s time to pause in easing in order to gauge how previous rate cuts are being digested.

“We have to appreciate that monetary policy works with a lag. Now that the economy is starting to open up, I think it’s time for us to pause and see how the economy is absorbing our loose monetary policy,” Mr. Diokno said in an interview with ANC on Monday.

On Thursday, the Monetary Board maintained the benchmark rates, citing the manageable inflation outlook and some early signs of recovery.

“[There were] early signs of recovery in manufacturing and exports. The construction business, especially public constructions, will pick with the BBB infrastructure programs,” Mr. Diokno said in a text message.

Mr. Diokno also said they are also expecting their policies will aid more small businesses through access to lending. — L.W.T.Noble