Real estate exposure of banks picks up in Q2

MANILA, Philippines — The exposure of Philippine banks in the volatile real estate sector picked up in June after eight consecutive quarters of month-on-month declines, but remained below the 20 percent threshold, according to the Bangko Sentral ng Pilipinas (BSP).

The central bank said the share of real estate loans to the industry’s total loan book increased to 19.5 percent of total loans as of end-June from nearly 19 percent as of end-March, but was lower than the 19.95 percent recorded as of end-June last year.

The real estate exposure of Philippine banks declined for eight consecutive quarters after peaking at 21.09 percent in March 2017.

As part of risk management, the BSP requires banks to keep their real estate exposure to a maximum of 20 percent of their loan portfolio.

Data showed lending to property developers stood at P1.97 trillion as of June, 7.6 percent higher than the P1.83 trillion disbursements to the real estate sector in the same period last year.

Residential real estate loans booked a double-digit growth of 10.6 percent to P712.56 billion from P644.05 billion, while commercial real estate loans increased by 5.9 percent to P1.26 trillion from P1.19 trillion.

Despite the increase, the central bank data showed that the gross non-performing real estate loans of local banks declined by 1.74 percent in June from 1.79 percent a year ago.

On the other hand, real estate investments in debt and equity securities went up by 6.9 percent to P108.35 billion from P101.31 billion.

The BSP monitors the real estate exposures of universal, commercial and thrift banks as part of its broader role of assessing the quality of bank exposures to the different sectors of the economy.

The central bank placed the real estate and project finance exposures of Philippine banks under tight watch as debt watchers and multilateral lending agencies have raised the red flag over the possible overheating in the economy,

The regulator approved enhancements to the prudential reporting requirements in order to strengthen oversight of banks’ real estate and project finance exposures.

The reportorial enhancements form part of BSP’s macroprudential toolkit and are being deployed to sharpen the central bank’s assessment of banking system exposures to the property sector.

As early as 2012, the BSP stepped up its watch over the real estate sector by ordering banks to disclose more comprehensive reports on their exposures to property industry.

Monetary authorities have time and again reiterated that concerns of overheating are unfounded as the country has enough buffers to fund imports and pay off maturing financial obligations.