Banks’ real estate loans slide 20% in June 2018

MANILA, Philippines — The exposure of the Philippine banking industry in the volatile real estate sector eased as of end-June, falling below 20 percent of their loan book for the first time in three years, 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 slipped to 19.92 percent as of end-June from 20.79 percent in the same period last year. This is the first time the share of real estate loans fell below 20 percent at 19.54 percent in end-March 2015.

The share of real estate exposures from the banks’ total loan portfolio peaked at 21.04 percent as of end-March last year before easing for five consecutive quarters.

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

Multilateral lender International Monetary Fund (IMF), debt watchers, and investment banks have warned the Philippines has been showing signs of overheating.

Latest data from the BSP showed real estate loans booked a double-digit 11.7 percent increase to P1.84 trillion as of end-June this year from P1.64 trillion a year ago.

Lending to property developers rose by 10.1 percent to P1.19 trillion, while loans disbursed to residential buyers grew at faster rate of 14.9 percent to P645.25 billion from P561.31 billion.

Despite the increase, the central bank data revealed the gross non-performing real estate loans of Philippine banks was steady at 1.8 percent in end-June this year.

On the other hand, real estate investments of the banking industry climbed by 8.1 percent to P302.52 billion from P279.83 billion.

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.

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.