‘BSP policies to keep banks safe from POGOs’
Credit to Author: Mayvelin U. Caraballo, TMT| Date: Fri, 17 Jan 2020 16:38:25 +0000
THE Bangko Sentral ng Pilipinas (BSP) has enough policies to make sure that the Philippine offshore gaming operator (POGO) sector will not negatively affect the country’s financial industry, officials assured.
During the first “GBED Talks” press chat on Friday, BSP Managing Director for Policy and Specialized Supervision Subsector Lyn Javier said the central bank has set out credit risk management guidelines as early as 2014 that require banks to underwrite their loans to real estate companies.
Furthermore, other measures in place include the 20-percent cap to the bank’s real estate exposure, single borrowers limit, and the conduct of real estate stress test, she added.
“We use stress test exposure of banks to real estate industry and assess whether their capital can actually absorb potential losses to these exposure. We’re satisfied with the results of these stress tests,” Javier highlighted.
For his part, BSP Governor Benjamin Diokno said he does not think that the presence of POGOs in the country is posing a big risk to the real estate sector.
“Of course there is a risk but it is not going to upset the economy. The big ones [banks] are conservative. They set aside an X percent for total business,” he noted.
“Plus in the case of POGO, they [real estate firms] ask for one year advance payment so there will be no abrupt change. There will be one year rental already secured. So that’s the situation. So it does not pose a risk,” Diokno added.
The central bank official’s comment came after Fitch Ratings warned that the Philippine banking system is facing rising risks amid a sustained surge in property prices in the past three quarters.
“Recent data point to speculative activity that could affect market stability if unchecked,” the credit ratings agency said in a recent statement.
While acknowledging that the surge partly reflects the combined 75-basis-point interest rate cuts that the central bank implemented last year, it also attributed the price growth to strong demand from POGOs.
The debt watcher said anecdotal reports suggested that POGOs accounted for around 30 percent of Metro Manila office demand over 2018 until the third quarter of 2019.
“Fitch believes this activity is likely to have had spillover effects on nearby residential property prices,” it added.
The credit rater further explained: “A higher reliance on the POGO sector to drive real-estate demand exposes banks and property firms to greater policy risks.”
It added that such risks could emanate from increased scrutiny or a clampdown on the sector by the Chinese or Philippine government, highlighting that in July 2019, Chinese authorities signaled an intention to crack down on POGOs, which are reported to employ many Chinese and provide services to Chinese clients.
This, Fitch Ratings pointed out, “could call into question the growth and viability of the industry and may ultimately lead to knock-on effects on domestic property demand and the broader economy.”