Banks’ real estate exposure rises to 21.1 percent in Q1

MANILA, Philippines — The exposure of Philippine banks and trust entities to the volatile property segment inched up to 21.1 percent in March from 21 percent in December last year, as the industry’s loans and exposures to the  real estate sector declined.

Preliminary data from the Bangko Sentral ng Pilipinas (BSP) showed that the latest figure was also lower than the 23.3 percent in March last year.

The central bank said investments and loans extended by the banking industry to the property sector slipped slightly to P3 trillion in end-March from P3.02 trillion in end-2022.

Lending decreased by about P15 billion to P2.57 trillion from P2.59 trillion. Commercial real estate loans slipped by 1.2 percent to P1.62 trillion from P1.64 trillion, while residential real estate loans inched up slightly to P950.05 billion from P944.59 billion.

On the other hand, past due real estate loans increased slightly by 1.2 percent to P133.7 billion from P132.15 billion. Past due commercial real estate loans slipped to P38.18 billion from P38.3 billion, while past due residential real estate loans went up by 1.8 percent to P95.52 billion from P93.85 billion.

As the country continues to book strong economic growth after recovering from the impact of the COVID pandemic, the gross non-performing real estate loans of Philippine banks retreated by 2.4 percent to P105.26 billion from P107.86 billion.

This translated to a lower gross non-performing real estate loan ratio of 4.09 percent in end-March from the end-2022 level of 4.17 percent.

Data from the BSP showed real estate investments in debt and equity securities declined by 2.5 percent to P425.46 billion from P436.3 billion.

At the height of the global health crisis, the BSP raised the real estate loan limit of big banks to 25 from 20 percent in August 2020 to free up P1.2 trillion in additional liquidity for lending amid the uncertainties brought about by the COVID pandemic.

To ensure that banks’ exposure to the property sector remains manageable, the BSP continues to maintain prudential measures including the real estate limit.

These measures also include the heightened surveillance of banks’ real estate and project finance exposures, and the real estate stress test (REST) thresholds for universal and commercial banks as well as thrift banks.

Housing prices continued to rally in the Philippines, picking up further in the fourth quarter of last year with the complete reopening of the economy as strict COVID quarantine and lockdown protocols were lifted.

The latest Residential Real Estate Price Index (RREPI) of the central bank showed an increase of 7.7 percent to 151.9 in the last quarter of 2022 from 141 in the same quarter in 2021.

The RREPI, launched in the first quarter of 2016, is used as an indicator for assessing the real estate and credit market conditions in the country.

Property prices in the National Capital Region (NCR) grew by 16.1 percent to 175.5 in the fourth quarter of last year from 151.1 in the same quarter of 2021 as families started to return to the metropolis from the provinces amid the resumption of on-site work as well as face-to-face classes.

Likewise, housing prices in areas outside the NCR also rose by 4.5 percent to 142.9 from 136.7.

To cool inflation and stabilize the peso, the BSP raised key policy rates by 425 basis points during a yearlong tightening cycle. This brought the benchmark rate to a 16-year high of 6.25 percent from an all-time low of two percent.

The inflation downtrend and robust economic growth in the first quarter of the year allowed the central bank to extend its prudent pause as it kept interest rates untouched during back-to-back rate-setting meetings in May and June.