Banks’ real estate exposure up 22% to P1.1 T as of June

MANILA, Philippines - Banks continued to increase their loans and investments to the property sector as of end-June, the Bangko Sentral ng Pilipinas reported yesterday.

The real estate exposure (REE) of banks rose 21.9 percent to P1.097 trillion in end-June from P900.148 billion in the same period last year.

Real estate loans, which made up 84 percent of the banks’ REE, went up by 21.2 percent to P924.317 billion in end-June from P762.493 billion a year ago.

Borrowings made by land developers, construction companies and other corporate entities amounted to P583.211 billion in end-June, while credit made for residential properties amounted to P341.106 billion.

Apart from loans, the rest of the REE is comprised of investments in property sector securities, which rose 25.6 percent to P172.907 billion in end-June from P137.655 billion in the same period last year.

The central bank continues to assess banks’ exposure to the real estate sector as part of its mandate in keeping the financial system stable.

The BSP in July required banks to undergo a separate stress test in order to evaluate the impact of their exposure to the real estate sector once borrowers fail to service their loans.

Under BSP Circular 839, banks should be able to maintain a common equity Tier 1 capital ratio of at least six percent and a minimum risk-based capital adequacy ratio of 10 percent even if 25 percent of a lender’s exposure to the property sector has been written off.

There would be a quarterly report submitted before the Monetary Board regarding the new stress test for banks. Those found non-compliance will be given the chance to explain and submit an action plan to address their shortcomings.

In 2012, the central bank already tightened regulations in monitoring banks’ exposure to the property sector.

The BSP expanded the reporting system which now covers loans to developers of socialized and low-cost housing, and to individuals, and credit supported by non-risk collaterals or Home Guarantee Corporation guarantee.

Moreover, banks are also required to report investments in debt and equity securities that finance real estate activities.

A tightened watch on banks’ real estate exposure has been put in place in order to ensure no asset bubbles arise given the continued robust growth of the property sector.