Philippine banks’ real estate exposure sinks to 6-year low

The exposure of Philippine banks and trust entities to the property sector dropped to a six-year low at the end of March, data from the Bangko Sentral ng Pilipinas (BSP) reported.

Banks’ real estate exposure ratio slipped to 19.41% as of end-March from 19.75% at end-December. It was also lower than 20.31% in the same period last year.

This was also the lowest real estate exposure ratio recorded in six years or since the 19.2% at end-March 2019.

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

Investments and loans extended by Philippine banks and trust departments to the real estate sector rose by 7.76% to P3.34 trillion as of March from P3.1 trillion in the same period in 2024.

Broken down, real estate loans increased by 9.1% to P2.97 trillion as of end-March from P2.72 trillion at end-March 2024.

Residential real estate loans increased by an annual 11% to P1.13 trillion, while commercial real estate loans also went up by an annual 7.96% to P1.83 trillion.

Past due real estate loans stood at P149.52 billion, higher by 9.3% from P136.79 billion a year prior.

Broken down, past due residential real estate loans climbed by 14.74% to P107.62 billion, while past due commercial real estate loans fell by 2.56% to P41.9 billion.

Gross nonperforming real estate loans inched up by 0.44% to P111.27 billion at end-March from P110.79 billion a year ago.

This brought the gross nonperforming real estate loan ratio to 3.75% at end-March, lower than 4.07% a year earlier.

Meanwhile, real estate investments also dipped by 1.86% to P372.4 billion as of end-March from P379.45 billion in the same period a year ago.

Debt securities increased by 1.93% year on year to P256.04 billion, while equity securities fell by 9.28% to P116.36 billion.

Joey Roi H. Bondoc, director and head of research at Colliers Philippines attributed the banks’ lower exposure ratio in the first quarter to the drop in consumer demand for housing loans.

In a phone interview, Mr. Bondoc said there have been reports that homebuyers are backing out of their loans.

“Once it enters the bank financing, [the payment] balloons to, say, quadruple, quintuple times. That’s the problem,” he said, noting that some buyers may have been attracted by the low downpayment.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said real estate developers may also be cautious in managing new supply after the exit of Philippine offshore gaming operators.

“Banks, real estate companies, investors, end-users also cautious on possible slower world and local economic conditions due to Trump’s higher tariffs/trade wars/other protectionist policies and geopolitical risks recently such as the Israel-Iran war,” Mr. Ricafort said.

Mr. Bondoc said he sees some “green shoots of recovery, but those are primarily outside of Metro Manila.”

“The horizontal house and lot projects are still good. But, again, the more expensive projects, say those in Metro Manila, including the condos, the take-up is definitely down,” he said.

Recent rate cuts by the BSP may not have been felt by consumers.

“We’ve seen these reductions already from the central bank since last year. But have we seen an impact, a positive impact, meaning reduced mortgage rates? Not yet. We have not seen that,” Mr. Bondoc said.

On Thursday, the BSP delivered a second straight 25-basis-point (bp) cut, bringing its policy rate to 5.25% amid a benign inflation outlook and slowing economic growth.

It has now reduced benchmark borrowing costs by 125 bps since it began its easing cycle in August last year.

“Our average rate, for example, five-year loans, still at 7.7%. When last year, it was 7.8%. There’s really no sizable, substantial correction or reduction in terms of these mortgage rates,” Mr. Bondoc said.

BSP Governor Eli M. Remolona, Jr. also signaled they could deliver one more 25-bp cut this year.

Source: Business World

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

Real estate lending to require closer monitoring amid rising risks

Lending to the real estate sector will need tighter supervision amid emerging risks that could impact the financial system, a Philippine central bank report showed.

“Real estate loan (REL) exposures need closer monitoring amid evolving market conditions,” the Bangko Sentral ng Pilipinas (BSP) said in its latest financial stability report.

“The high-interest rate environment, shifting consumer preferences, remote work arrangements and recent government pronouncements banning Philippine offshore gaming operators (POGO) have implications on the sector’s loan quality.”

Latest data from the BSP showed Philippine banks and trust entities’ real estate exposure ratio rose to 19.75% as of end-December from 19.55% at end-September.

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

Broken down, real estate loans increased by 7.9% year on year to P2.95 trillion at end-December. This as residential real estate loans climbed by an annual 9.6% to P1.1 trillion, while commercial real estate loans went up by 6.9% to P1.85 trillion.

The BSP also noted the rise in nonperforming loans in the real estate sector. Data showed the bulk or 62.5% of the NPL portfolio consists of commercial real estate.

“However, majority of the nonperforming RELs are residential RELs at 65.2% against commercial RELs at 34.8% as of September 2024,” it added.

The BSP also said that the rise in bad loans was driven by the mid- and low-cost housing segments as they account for a large share in residential loans.

“What does not show up as higher NPLs for commercial real estate are likely to be seen in the financial statements of real estate developers,” it added.

Joey Roi H. Bondoc, director and head of research at Colliers Philippines, said consumers could be struggling to pay back their loans, which is why developers are finding ways to offer more flexible payment terms.

“Based on anecdotes that we have been getting, a lot of buyers right now are scouting and looking for the most attractive payment terms or incentives, especially in the ready-for-occupancy (RFO) market,” he said in a phone call.

Mr. Bondoc said there is a “pretty substantial” number of unsold RFO units in the market, especially in the mid-income segment, which covers nearly 60% of unsold RFO units.

“Essentially, six out of 10 unsold RFO (units) are from the mid-income segment, which is heavily dependent on bank mortgages,” he added.

He noted some developers are extending downpayment terms among other measures to make financing more accessible.

“Banks should also be more cautious moving forward because the ready-for-occupancy (RFO) promos are getting sweeter, they’re getting extended, but you don’t want to see the market falling into that trap again,” Mr. Bondoc said.

The BSP noted the oversupply in the property market, especially in the condominium segment. It noted it would take 34 months for the current condominium supply to be sold.

“Despite recovery in prices, vacancies remain elevated amid the increase in residential real estate supply,” the central bank said.

The rise in new units is outpacing net take-ups in the secondary market, it added.

“It will be very interesting this first quarter because we’re seeing tepid launches. Developers are almost not launching new projects at this point,” Mr. Bondoc said.

OTHER RISKS

Meanwhile, the BSP also flagged other risks to the real estate sector.

“A potential risk is the buildup of in-house financing as reflected in the installment contract receivables of real estate developers. These contribute to revenues but also expose developers to credit risk.”

“Past due and impaired receivables remain elevated including in real estate developers exposed to POGOs,” it added.

While property developers are seeking ways to provide more enticing payment terms, Mr. Bondoc noted it is unlikely that there will be significant price reductions.

However, he noted that once the central bank continues cutting interest rates, this would result in lower mortgage rates.

“Probably that’s when we might start seeing low interest rates having a positive impact, kicking in and resulting in lower mortgage rates. Therefore, perhaps chipping in to greater take-up in the pre-selling sector.”

Housing prices rose by 6.7% year on year in the fourth quarter, according to the latest Residential Real Estate Price Index. This was a turnaround from the 2.3% decline in the previous quarter.

The Monetary Board cut the key rate by a total of 75 basis points last year.

While the central bank delivered a pause at its first meeting in 2025, BSP Governor Eli M. Remolona, Jr. has said it is still on an easing trajectory and has signaled further rate cuts this year.

Apart from lower interest rates, real estate loan demand could also be impacted by remittance flows, Mr. Bondoc said.

“I think that will be crucial because data from the central bank would also show that more remittance-receiving households are in fact allocating money for real estate requirements,” he said.

The BSP’s latest Consumer Expectations Survey also showed that 5% of households plan to buy or acquire real property in the next 12 months, up from 4.8% a year ago.

Source: Business World