Lending to the real estate sector continued to rise in March, indicating the continued demand from home and office builders, despite the prospect of tighter regulations.
Relative to the size of the industry’s total portfolio, the share of real estate loans declined, reflecting banks’ tightening of credit standards for property-related credits.
Data released by the Bangko Sentral ng Pilipinas (BSP) showed outstanding real estate loans continued to top the P1-trillion peso mark. This came despite the decline in private construction noted in the first quarter of the year.
At the end of March, universal, commercial, and thrift banks’ exposure to the real estate sector rose to P1.035 trillion or the equivalent of 21.3 percent of the industry’s total portfolio.
This was higher than the P1.006 trillion in real estate loans at the start of the year, which represented 21.8 percent of the total portfolio.
A bank’s exposure to real estate includes loans and the bank’s investments in property companies, either via holdings of equity or debt securities.
The BSP has been keeping a tighter watch on the real estate sector since last year, first by expanding the definition of real estate exposures to include investments.
Last July, new limits that tied a bank’s real estate lending activities to capitalization levels were also introduced as a way to discourage excessive risk taking. These moves aim to preempt the formation of an asset bubble in the real estate sector, which would have negative ramifications on other parts of the economy.
The BSP noted that universal and commercial banks’ lending to commercial real estate, which is subject to a cap of 20 percent of all their loans, remained at an average of 10.7 percent of their portfolios.
Real estate loans (RELS) expanded by 2.8 percent to P866.6 billion in March this year from P843 billion in December last year. RELS represented 83.7 percent of the real estate exposure (REE) of banks.
Loans granted to land developers, construction companies and other corporate entities represented 60 percent of the RELs while the remaining 40 percent went to borrowers acquiring residential properties.
At end-March this year, the non-performing RELs of banks represented 2.77 percent of the total, marginally lower than the 2.80 percent recorded a quarter earlier. The banks’ non-performing RELs have been on a downward trend since 2012.