Philippine banks have ample safeguards protecting their collective balance sheet in the event of instability borne of the sector’s overexposure to real estate, the central bank said.
Bangko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco Jr. said on Tuesday that the country’s banks passed the rigorous stress test on their ability to continue to operate in the event of a failure by the real-estate sector to overcome a simulated crisis.
In mid-2014, the central bank mandated local lenders to go through a “real-estate stress test” (REST) to see if they are well-equipped to handle the associated risks to real- estate lending. In particular, the test will determine if financial institutions have sufficient capital to absorb simulated credit risks to the property sector.
The results of the very first REST have yet to be published.
“In terms of the REST, they also do [remain above the minimum capital requirement]. Other banks, they’re near [the threshold] but you know they have to explain. But they are still above. They still meet [the standards],” Tetangco told reporters on Tuesday. In the circular issued last year mandating banks to go through REST, the central bank said failure to meet the prudential limit requires banks to submit themselves to so-called remedial action.
Banks that do not make the grade are mandated to submit an action plan to meet the required stress-test levels within a reasonable time frame. The action plan must be submitted within 30 calendar days from date of notification.