The Bangko Sentral ng Pilipinas (BSP) wants all banks in the country avoid problems by discouraging them to have huge real and other properties acquired (ROPA) holdings for a long time.
The BSP said huge ROPA net book is an indication that a bank’s loaning system is lose, allowing even undeserving creditor to avail themselves of loan.
ROPA are the properties of banks obtained from foreclosing properties used as collaterals.
“BSP discourages ROPA holdings as these are generally considered to be illiquid and unproductive assets,” deputy governor for supervision and examination sector Nestor Espenilla told the Daily Tribune.
Banco Filipino, which was placed under receivership early this years, had over P2 billion in ROPA on the time it was closed. It’s huge holdings of undisposed assets proved helpless when the Monetary Board ordered that it be placed under receivership.
The official said the longer huge ROPA account stays in a bank, the more illiquid it becomes since it is not easy to dispose such properties.
Worries of having high undisposed foreclosed assets are the main reason why banks don’t foreclose more often the past few years.
In practice, a bank is lucky if it’s able to dispose at least one-fourth of its ROPA holdings in three or more years.
“Banks should dispose these the soonest possible time,” Espenilla pointed out.
According to the deputy governor, the biggest repercussion of having this problem with undisposed assets is on the bank’s balance sheet.
“On the balance sheet, ROPA has a higher risk weight of 150 percent instead of the standard 100 percent,” Espenilla said.
One of the standards raised for smaller banks under Basel 1.5 pertains to banks’ un-disposed assets.
Under Basel 1.5, the capital charge on ROPA net book value was increased to 15 percent from 10 percent to encourage faster disposition of foreclosed but undisposed assets.