Bank Lending for Real Estate Hits 3-year High
Bank exposure in the volatile real estate sector rose for the sixth straight quarter to hit a three-year high in end-June last year, and is likely to increase further after the Bangko Sentral ng Pilipinas (BSP) raised the ceiling that the industry could disburse to the sector amid the COVID-19 pandemic.
Data from the central bank showed the combined real estate loan exposure of major players in the country’s banking industry increased to 20.73 percent of the sector’s total loan book in end-June last year from 20.31 percent in end-March.
This was the highest since the 20.79 percent recorded in June 2017. The real estate exposure of Philippine banks peaked at 21.09 percent in end-March 2017.
In August last year, the Monetary Board raised the real estate loan limit of big banks from 20 percent to 25 percent of total loans to free up an estimated P1.2 trillion for additional lending to the sector.
Data showed lending to property developers went up by 11.2 percent to P2.2 trillion in end-June last year from P1.98 trillion in end-June 2019.
The commercial real estate loans increased by 11.9 percent to P1.41 trillion from P1.26 trillion, while residential real estate loans increased by 10.3 percent to P787.9 billion from P714.06 billion.
Due to uncertainties brought about by the COVID-19 pandemic, the gross non-performing real estate loan ratio of Philippine banks soared to 2.77 percent in end-June last year from 1.74 percent in end-June 2019.
Past due real estate loans surged 54.5 percent to P93.94 billion from P60.8 billion after past due commercial real estate loans jumped 65.6 percent to P28.56 billion, while past due residential real estate loans surged 50.1 percent to P65.38 billion.
On the other hand, data from the BSP showed real estate investments in debt and equity securities declined by 9.9 percent to P300.3 billion from P333.42 billion.
Despite the contraction in loan disbursements by big banks for the third straight month with 2.7 percent in February, credit to the real estate sector went up by 5.5 percent to P1.77 trillion in end-February.
The real estate exposure of Philippine banks has been rising since the first quarter of 2019 due to higher cost of acquiring real estate in the country. The steady rise in the industry’s real estate exposure could be traced to higher loans extended to the sector as well as rising property prices.
Latest data also showed property prices continued to rise, with the residential real estate price index (RREPI) inching up by 0.8 percent to 134.4 in the fourth quarter of last year from 133.3 in the same quarter in 2019, reflecting the rise in prices in areas outside the National Capital Region (NCR) as Filipinos head outside the metropolis to avoid the suffocating city lockdowns.
The RREPI is used as an indicator for assessing the real estate and credit market conditions in the country. It measures the average change in prices of various types of housing units based on data from housing loans granted by universal, commercial and thrift banks.
The central bank’s 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 possible overheating of the economy, S&P Global Ratings earlier warned the significant real estate exposure of Philippine banks would drive asset-quality deterioration as the COVID-19 pandemic rages on, while Fitch Ratings said the banking sector remained at risk amid the prolonged weakness of the property sector.
Even before the pandemic, the BSP has already implemented various macroprudential measures that would safeguard against property price bubbles.