QuestionsQuestions (BSP CIRCULAR LETTER)
The Circular Letter informs banks of a Monetary Board decision (Resolution No. 477 dated April 28, 1997) requiring reductions in (1) the loan-to-appraised-value ratio for real estate loans and (2) the aggregate share of real estate loans in a commercial bank’s total loan portfolio.
It must be not more than 60% of the appraised value of the real estate security and the insured improvements (reduced from 70%).
The previous maximum was 70% of the appraised value of the real estate security and insured improvements.
The computation refers to the appraised value of the real estate security and the insured improvements.
Commercial banks must observe an aggregate limit on real estate loans of not more than 20% of their respective total loan portfolio.
By comparing the total outstanding real estate loans against the bank’s total loan portfolio, ensuring real estate loans do not exceed 20% of the total loan portfolio.
It is given a period of one year within which to comply with the prescribed 20% ratio.
One year from the issuance of the directive, as stated in the Circular Letter (within which to comply).
Banks are required to be guided accordingly—meaning they must observe the new loan-to-appraised-value limit (≤60%) and the aggregate limit on real estate loans (≤20% of total loan portfolio), with the one-year period for non-compliant banks.
It tightens BSP prudential limits by requiring banks to lend less relative to the value of real estate collateral, thereby reducing credit risk and improving loan adequacy/security coverage.
(1) The 60% rule limits the amount of any individual real estate loan relative to collateral appraised value; (2) the 20% rule limits the bank’s overall exposure by limiting the proportion of the entire loan portfolio that can be real estate loans.
It was signed by (SGD.) Alberto V. Reyes, Deputy Governor.
The Circular Letter was adopted on May 6, 1997. The Monetary Board Resolution was dated April 28, 1997, meaning the policy decision came earlier and was later communicated through the Circular Letter.
Both must be complied with simultaneously; the loan must not exceed 60% of the appraised value/insured improvements, and the bank’s total real estate loans must remain within 20% of its total loan portfolio.
No. Compliance requires both the per-loan ratio (≤60%) and the aggregate exposure limit (≤20%), subject to the one-year adjustment period if initially exceeding 20%.