Real Estate Stress Test (REST) Limit for Real Estate Exposures

BangkO Sentral ng PiliPinaS

OFFICE OF THE GOVERNOR

CIRCULAR NO. 839 Series of 2014

Subject: Real Estate Stress Test (REST) Limit for Real Estate Exposures

scenario, the principle of loss absorbency through minimum capital ratio thresholds and heightened supervisory response. adoption of a prudential real estate stress test (REST) limit for universal/commercial banks (U/KBs), thrift banks (TBs) on a solo and consolidated basis on their aggregate real estate exposures. The REST limit combines a macroprudential overlay of a severe stress test The Monetary Board in its Resolution No. 832 dated 22 May 2014, approved the

include a real estate stress test (REST) limit for U/KBs, as foliows: Section 1. Section 1397 of the Manual of Regulations for Banks shall be amended to

UBs/KBs. "Section 1397 Limits on Real Estate Exposures and Other Real Estate Property of

1.Real Estate Loan Limit. Total real estate loans of UB/KBs, excluding: xxx "

2. Real Estate Stress Test (REST) Limits. A prudential limit is set for real estate 21 September 2012, and other real estate property of UBs/KBs. Other real estate: property shall include those recorded under Real and Other Properties Acquired and Non-Current Assets Held for Sale. For this purpose, a stress test will be undertaken on a U/KB's REEs and other real estate property under an exposures, as defined under Memorandum No. M-2012-046 dated assumed write-off rate of 25 percent.

risk-based capital adequacy ratio, on a solo and consolidated basis, under the .The prudential REST limits which shall be complied with at all times by UBs/KBs are 6 percent of Common Equity Tier 1 (CET1) capital ratio and 10 percent of prescribed write-off rate.

Monetary Board, upon the report of the supervising department of the SEs, shall determine whether the UB/KB has been able to render sufficient A UB/KB which does not meet either or both the REST limits shalt be directed to explain why its exposures do not warrant immediate remedial action. The within 30 calendar days from date of notification, to meet the REST limits within a reasonable time frame. explanation, otherwise, the UB/KB shall be directed to submit an action plan,l

may be considered to be engaging in unsafe and unsound practice, to be A UB/KB which fails to submit an action plan or persistently breaches the REST limits due to non-compliance with the commitments in its submitted action plan

Section X149, and shall subject the UB/KB to appropriate sanctions." determined in accordance with Section 56 of R.A. No. 8791 as implemented by

Section 2. Section 2397 shall be added to the Manual of Regulations for Banks on the real estate stress test (REST) limit for thrift banks, as follows:

TBS "Section 2397 Limits on Real Estate Exposures and Other Real Estate Property of

A prudential limit is set for real estate exposures, as defined under Memorandum No. M-2012-046 dated 21 September 2012, and other real estate property of TBs. Other

and Non-Current Assets Held for Sale. For this purpose, a stress test will be undertaken on a TB's REEs and other real estate property under an assumed write-off 'rate of 25 percent. real estate property shall include those recorded under Real and Other Properties Acquired

The prudential REST limits which shall be complied with at all times by TBs are:

a. 6 percent of Common Equity Tier 1 capital, for TBs that are subsidiaries of

UBs/KBs, b. 6 percent of Tier 1 capital, for stand-alone TBs1, and

C 10 percent of risk-based capital adequacy ratio for all TBs.

been able to render sufficient explanation, otherwise, the TB shall be directed to submit an why its exposures do not warrant immediate remedial action. The Monetary Board, upon the report of the supervising department of the SES, shall determine whether the TB has A TB which does not meet either or both the REST limits shall be directed to explain

a reasonable time frame. action plan, within 30 calendar days from date of notification, to meet the REST limits within

A TB which fails to submit an action plan or persistently breaches the REST limits

considered to be engaging in unsafe and unsound practice, to be determined in accordance due to non-compliance with the commitments in its submitted action:plan may be

with Section 56 of R.A. No. 8791 as implemented by Section X149, and shall subject the TB to appropriate sanctions."

either in the Official Gazette or in a' newspaper of general circulation. This Circular shall take effect fifteen (15) calendar days following its publication

FOR THE MONETARY BOARD:

Ywel DIWA/C. GUINIGUNDO Officer-in-Charge

27 June 2014

TBs that are not subsidiaries of universal and commercial banks.

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