Real estate exposure of banks continues to rise

MANILA, Philippines — The exposure of Philippine banks in the volatile real estate sector rose for four consecutive quarters in 2019 amid the steady increase in property prices due to strong demand, according to the Bangko Sentral ng Pilipinas (BSP).

Based on a report from the BSP, the combined real estate loans and exposures of major players in the local banking industry increased to 19.89 percent in the fourth quarter of 2019 from 19.54 percent a quarter ago.

This almost touched the 20 percent ceiling set by the BSP to manage the exposure of the industry to the volatile real estate sector. The exposure of Philippine banks has been rising since the first quarter of 2019 due to higher cost of acquiring real estate in the country.

The real estate exposure of Philippine banks peaked at 21.09 percent in end March 2017.

The steady rise in the industry’s real estate exposure could be traced to higher loans extended to the sector as well as rising property prices.

Data showed lending to property developers recorded a double-digit increase of 16.7 percent to P2.16 trillion as of end-December last year from P1.85 trillion in the same period in 2018.

The commercial real estate loans jumped by 17.8 percent to P1.39 trillion from P1.18 trillion, while residential real estate loans grew by 13 percent to P762.95 billion from P675.21 billion.

Despite the increase, the central bank data showed that the gross non-performing real estate loans of Philippine banks went up slightly to 1.72 percent from 1.63 percent.

On the other hand, real estate investments in debt and equity securities fell by 10.8 percent to P95.2 billion from P106.67 billion.

Latest BSP data also showed that property prices continued to rise with the residential real estate price index (RREPI) increasing by 10.2 percent to a record 130.2 in the fourth quarter of last year from 118.1 in the same quarter last year due to strong demand particularly from Philippine offshore gaming operators (POGOs).

The RREPI is used as an indicator for assessing the real estate and credit market conditions in the country. It measures the average change in prices of various types of housing units based on data from housing loans granted by universal, commercial and thrift banks.

The BSP closely 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 Monetary Board 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.