Real estate risks need closer scrutiny

Even as the Philippine banking system has remained resilient, the International Monetary Fund (IMF) said risks in the real estate sector and consumer credit still require closer monitoring and could prompt the central bank to intervene.

“Financial stability risks remain contained. The banking system has sufficient liquidity and capital buffers, and nonperforming loans (NPL) are low,” an IMF spokesperson said.

Latest data from the Bangko Sentral ng Pilipinas (BSP) showed the banking industry’s NPL ratio eased to a three-month low of 3.3% in March.

“However, parts of the commercial real estate sector have seen persistently high vacancies and falling rents, and NPLs for housing loans remain elevated,” the IMF said.

Property consultant Colliers Philippines expects the vacancy rate for residential property in Metro Manila to hit 26% by yearend, while office vacancies are projected at 22% this year amid condominium oversupply and slow take-up of unsold units.

The BSP in its latest Financial Stability Report noted the “rising NPLs in the real estate sector.”

The NPL ratio for residential real estate was at 6.82%, while commercial real estate NPLs were 2.18% as of September 2024. The bulk (62.5%) of the real estate loan portfolio consists mostly of commercial loans.

The BSP also earlier said the mid- and low-cost housing segments, which account for a large part of residential real estate loans, have driven the rise in NPLs.

Consumer loans are also another area that the BSP needs to keep an eye on, the IMF said.

“The rapid growth in consumer credit, though a relatively small portion of banking assets, warrants close monitoring,” it said.

BSP data showed outstanding loans of universal and commercial banks rose by 11.8% to P13.19 trillion in March from a year ago.

Consumer loans to residents increased by 23.6% in March to P1.64 trillion, mainly due to the 28.8% jump in credit card loans to P959.43 billion.

The central bank must also be prepared to step in, when necessary, the multilateral institution said.

“The BSP should be ready to adjust macroprudential policy in line with developments in the financial cycle to preempt the buildup of vulnerabilities,” the IMF said.

In the same Financial Stability Report, the BSP said that the financial system’s real estate loan exposure will require “closer monitoring amid evolving market conditions.”

Banks’ real estate exposure ratio rose to 19.75% as of end-December from 19.55% at end-September.

This as total investments and loans extended by Philippine banks and trust departments to the real estate sector grew by 5% to P3.31 trillion as of end-December from P3.15 trillion in 2023.

The BSP monitors lenders’ exposure to the real estate industry as part of its mandate to maintain financial stability.

Source: Business World

Remittances higher in March at $3.13B

Money sent home by overseas Filipino workers (OFWs) rose in March compared to a month and a year earlier, data from the Bangko Sentral ng Pilipinas (BSP) showed.

At $3.13 billion, personal remittances were higher than the $3.024 billion recorded in February and also increased from the $3.051 billion seen in March 2024.

"Both land-based and sea-based workers contributed to the increase in remittances," the central bank said in a statement.

The result also came as several overseas Filipino groups called for a zero remittance week from March 28 to April 4 in protest over the arrest and extradition to The Hague of former president Rodrigo Duterte for alleged crimes against humanity.

The latest monthly count pushed the first-quarter remittances tally to $9.4 billion, up 2.7 percent from the $9.15 billion recorded in January-March last year.

In March alone, money sent home via banks totaled $2.81 billion, 2.6 percent more than the $2.74 billion posted a year earlier and February's $2.72 billion.

The US continued to account for the biggest share of overall remittances at 40.7 percent, followed by Singapore at 7.6 percent; Saudi Arabia, 6.2 per-cent; Japan, 4.9 percent; and the United Arab Emirates, 4.6 percent.

Rounding out the top 10 were the United Kingdom (4.4 percent), Canada (3.1 percent), Taiwan (2.8 percent), Qatar (2.8 percent), and Hong Kong (2.7 percent).

The BSP qualified that remittance data by source has limitations, with the US appearing to be the main source as remittance centers in cities abroad commonly course the money through correspondent banks that are mostly located in the US.

Sought for comment, Philippine Institute for Development Studies Senior Research Fellow John Paolo Rivera said the increase in remittances was largely due to sustained demand for Filipino labor abroad, particularly in the areas of health care, engineering and domestic services.

"Seasonal factors like Holy Week and school-related expenses may have also encouraged higher remittance flows during the period," he added.

"Despite global uncertainties, remittances continue to show resilience, serving as a critical support for household consumption and a buffer for the country's external accounts."

Source: Manila Times

PHL financial system remains resilient but faces ‘moderate’ risks

The country’s financial sector is seen to remain robust and is well-positioned to absorb shocks, the Bangko Sentral ng Pilipinas (BSP) said, but noted external headwinds that pose risk to the sector.

“The Philippine financial system remains resilient but faces moderate risks that warrant close monitoring,” the BSP said in its latest financial stability report.

“The propagation of global uncertainties, including heightened geopolitical tensions, evolving monetary policies in major economies, and potential shifts in the United States following the outcome of the presidential elections could impact the Philippine economy.”

In the report, the BSP said the banking sector growth will be supported by ample buffers and stable financial markets.

“Banks have high capital buffers and ample liquidity, which would allow the financial system to absorb potential losses and/or support economic activity,” it said.

“Financial markets are stable with no signs of asset price misalignments and high share of domestic investor participation.”

The Philippines’ international reserves are also deemed adequate and can cushion the country from shocks, it added.

Latest data showed the country’s dollar reserves rose by 3.3% month on month to $106.65 billion as of end-February. This was also 4.6% higher than $101.99 billion in the same period a year ago.

“On balance, the banking sector remains healthy as characterized by limited endogenous risks or internal weaknesses,” the central bank said.

“Nonbank financial institutions (NBFIs), although small compared with the size of the Philippine banking system, expose banks to common exposure risk through their shared investments and holdings.”

Credit supply is also seen to remain stable amid improved profitability, robust capital base and ample liquidity.

“Although growth is slower than pre-pandemic levels, the banking system is well-positioned to support the domestic economy, with an expansion in its lending portfolio.”

Bank lending jumped by 12.8% to P13.02 trillion in January, its fastest pace in over two years.

INFLATIONARY PRESSURES

However, the BSP flagged global risks such as inflationary pressures and changing economic policies.

It cited the World Uncertainty Index (WUI) and the Global Economic Policy Uncertainty (GEPU) Index, which have been on an upward trend.

“The cost of production materials (especially in the industrial sector) may accelerate due to supply-chain disruptions amid geopolitical instability and lag-effects of global monetary policy easing.”

Primary risk considerations include disruptions in global supply chains and logistics, the BSP said.

Banks also face asset valuation risks, the BSP said, citing elevated nonperforming loans (NPL) and growth in unsecured consumer loans.

The industry’s NPL loan ratio rose to 3.38% in January from 3.27% in December. This was the highest in two months or since the 3.54% in November.

“Recent global uncertainty stems from concerns on geopolitics and economic policies that affect international trade and investment flows.”

“A ‘macro-market disconnect’ — when macroeconomic risks are not properly priced in by market players — could affect asset valuations and may be subject to severe corrections.”

Capital flight is another risk financial markets could face, it added. Foreign investors account for about 46% of trading in the local bourse.

“Portfolio flows reflect investor risk sentiment and translate to FX (foreign exchange) movements. Portfolio investments are vulnerable to outflows.”

Risks also stem from debt servicing and high “maturity walls,” the central bank said.

“Corporate earnings are reverting to pre-pandemic levels. However, increased leverage and sustained funding mismatches especially in large corporates pose vulnerabilities.”

“Significant reliance on bank funding and the degree of interconnectedness among corporates with Domestic Systemically Important Banks (DSIBs) could amplify risks to the financial sector,” it added.

The BSP said the “interconnectedness of large conglomerates to the banking system may expose the financial system to risks coming from the corporate sector given increasing leverage and funding mismatches.”

The sector also faces emerging risks from financial technology such as artificial intelligence adoption.

“While innovations can enhance efficiency and financial inclusion, the increasing influence of technology also introduces new challenges, such as cybersecurity threats, operational risks, system failures or algorithmic errors, and biases that could undermine regulatory compliance.”

Meanwhile, the BSP noted further monetary easing, which would also bolster the financial system’s growth.

“The transition towards an accommodative interest rate environment could encourage investment in capital-intensive projects, business expansion, and household consumption.”

“Looser financing conditions could pave the way for enhanced credit availability for businesses and consumers to ramp up investments and rebuild savings as buffer to shocks.”

The BSP began its easing cycle in August last year, cutting rates by a total of 75 basis points (bps) by end-2024.

Despite delivering a pause last month, the central bank has said it is still on an easing trajectory. BSP Governor Eli M. Remolona, Jr. has signaled the possibility of a 25-bp cut at the Monetary Board’s meeting on April 10.

“Priority measures could enhance the stability and resilience of the Philippine financial system if aligned with monetary policy and banking supervision,” the BSP said.

It also called for the further enhancement and deepening of capital markets; improvement of reporting frameworks; and development and adoption of macroprudential tools.

Source: Business World