Central Bank Issues Rules for Bank & Realty Company JVs
The Bangko Sentral ng Pilipinas (BSP, the Philippine Central Bank) recently issued Circular No. 518, s. 2006, which authorizes banks to enter into joint venture agreements (JVA) with real estate development companies for the development of properties acquired by banks in settlement of loans and other advances, either through foreclosure or dacion en pago (ROPAs). The circular also covers bank properties acquired as a consequence of merger/consolidation, which are no longer necessary for banking operations. The new issuance aims to encourage banks to dispose of such properties. All types of banks and non-bank financial institutions with quasi-banking functions are authorized to invest in the equities of real estate development companies as a non-financial allied undertaking, subject to the limitations provided by law and the BSP. Circular No. 518 seeks to strike a balance between the objectives of making productive use of the ROPA and other properties acquired as a consequence of merger/consolidation, and minimizing the risk and exposure of banks on such investments.