Property ‘bubble’ a remote possibility

MANILA, Philippines—Despite the rapid rise in lending to the real estate sector that, in the process, has driven up property prices across the country, the formation of a “bubble” remains a remote possibility, according to the Bangko Sentral ng Pilipinas.

BSP Assistant Governor Johnny Noe Ravalo said real demand, not speculation by investors, continued to fuel the boom in the property sector, both for residential and commercial purposes.

“We don’t see anything that’s particularly problematic,” Ravalo told reporters on Friday.

Earlier this week, the BSP reported a slight increase in soured loans extended by thrift banks, which cater more to consumers and small businesses.

Non-performing loans (NPL) of the thrift banking industry increased to 5.34 percent at the end of 2012, higher than the 4.97 percent in June of the same year. The increase was partly attributed to the industry’s aggressive lending to the property sector.

Ravalo described the increase in bad loans as a “blip,” adding that over the past few years, there has been a steady decline in unpaid loans held by banks—leading to a significant improvement in asset quality.

“What’s critical is that NPLs are falling over time, not only in their proportion to total loans, but in their peso value,” he said. “There are blips, but that’s part of market dynamics.”

He said the low level of bad loans held by banks, despite the aggressive lending to all sectors, was proof that underwriting standards were not being compromised for the sake of growth.

Latest documents from the BSP showed that lending to real estate, renting and business services accounted for 22.3 percent of all credits extended by universal and commercial banks as of the end of June. This was lower than the 24 percent last May and the 27 percent in June of 2012, as lending to other sectors expanded.

Ravalo noted that despite the slowdown in lending to real estate relative to other industries, banks continued to extend financing to new home buyers and businesses putting up new office spaces.