Philippines: BSP Issues Guidelines on Small Housing Loans
Manila, Philippines, January, 08 2010 -
Poor families that want to build their own homes will have easier time doing so after the Bangko Sentral ng Pilipinas (BSP) approved rules on the extension of housing microfinance loans by banks.
In issuing the circular dated January 6, the central bank said the housing microfinance provision is "seen as a way to improve the living conditions of the enterprising poor and the low-income households, which will contribute to better health, productivity and quality of life."
The BSP, which approved the housing microloan product in February 2008, added this "spurs economic activity and creates employment through the multiplier effects generated in the downstream industries by the procurement of construction materials."
In a circular dated January 6, a document of which was acquired by reporters on Friday, the BSP said banks that plan to offer a housing microfinance product must comply with the following requirements:
- have a track record of at least two years of implementing a sustainable microfinance program;
- have a housing microfinance manual and trained loan officers who can properly explain the product to clients;
- have at least a CAMELS rating of 3, a capital adequacy ratio not lower than 12%, have not been subjected to a prompt corrective action by the BSP and have no arrearages in microfinance borrowing; and
- a certificate from the bank on its commitment to implement its housing microfinance product based on its submitted manual.
The CAMELS rating measures a bank’s capital adequacy, asset quality, earnings, liquidity and sensitivity to market risk. The scores ranges from 1 for best and 5 for worst.
The BSP also said that since the risk profile of the new product may be different from regular microfinance loans, banks must carefully study the ability of clients to repay the loan, especially the new customers.
The central bank also requires clients availing of the product to open a savings account if they do not have one yet.
It also made it mandatory for banks to secure "tenure instruments" or securities maturing in 10 years as collateral for loans over P150,000 and a mortgage redemption insurance to cover against borrowers’ death or permanent disability.
The Bangko Sentral added that banks should have an adequate loan monitoring, collection, control and provisioning system, which would be included in the housing microfinance manual.
The BSP also gave banks the option to apply for specific product approval, or participate in a microfinance lending program based on the common business model of a group of banks or an industry association.
Clients may borrow up to P150,000 for home improvement and up to P300,000 for house construction and purchase and incremental loan amounts for incremental building. Home improvement and repair loans are payable up to five years, and up to 15 years for house construction or acquisition.
The rules added that amortizations should be "frequent" and not exceed a reasonable percentage of a client’s income based on a cash flow analysis.
The BSP said eligible borrowers are existing microfinance clients, new customers eligible for microfinance loans based on a bank’s policies and those who have qualified for the Credit Surety Fund, a pooled fund from local government units and government finance institutions used to guarantee loans.
The central bank said the housing microfinance product may serve as alternative compliance to the mandatory lending to agrarian reform and agriculture activities required by Presidential Decree 717. It added that housing microfinance loans are also eligible for rediscounting.