Philippine Banks' Risk Exposure to Real Estate Sector Declines

Banks in the Philippines are now less exposed to the volatile real estate sector this third quarter.

According to the Bangko Sentral ng Pilipinas, its exposure not only has slipped down but also remained below the 20 percent threshold.

As reported by Phil Star, the trend could be the result of an increase in the share of real estate loans to the industry’s total loan book.

That share is not 18.42 percent of total loans as of end of September. It was only 19.47 percent as of end of June.

The real estate exposure of the Philippine banks reached a record high of 21.09 back in March 2017.

This is already above the threshold of the 20 percent that the BSP set for banks. This requirement keeps the real estate exposure of banks at a healthy level.

BSP data shows that loans to property developers experienced a double-digit increase of 10.9 percent.

This means that loans grew from P1.83 trillion in September 2018 to P 2.03 trillion as of September 2019.

In addition, real estate loans also experienced double-digit growth of 13.1 percent.

This means that from P649.25 billion, it went up to P734.22 within the same time frame.

Commercial real estate loans are no exception. Since they also increased by 9.7 percent.

From 1.18 trillion in September 2018, it reached P1.29 trillion in September 2019.

Remarkably, regardless of all these increases, the ratio of gross non-performing real estate loans of Philippine banks only amounted to 1.82 percent as of September 2019.

This is lower than the 1.80 percent posted in 2018, which means that loans made are getting paid.

Real estate investments in debt and equity securities, however, experienced an increase of 9.5 percent.

They now totaled P333.5 billion from just P304.56 in September 2018.

There is a good reason why the BSP is monitoring these loan movements.

High levels of debts and loans can lead to a possible overheating in the economy as debt-watchers and multilateral lending agencies warned.

These agencies encouraged more prudence in reporting requirements and a higher level of oversight.

As early as 2012, however, the Central Bank already stepped up its monitoring efforts of the real estate sector.

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