Banks’ property exposure hit P1.2T

Bangko Sentral ng Pilipinas. INQUIRER.net FILE PHOTO

BANK funds exposed to the real estate sector rose by more than a fifth last year, outpacing the growth in loans of all types, despite regulatory restrictions on the flow of liquidity to avoid fueling an asset bubble in the industry.

Documents from the Bangko Sentral ng Pilipinas (BSP) showed that the banking sector’s exposure to the property industry was driven by the steady demand for financing from home and office builders.

Authorities keep a close watch on the real estate sector to “foster the strength of individual banks as well as the systemic stability of the Philippine banking industry,” the BSP said in a statement.

Last year, the exposure of universal, commercial and thrift banks to real estate sector rose to a record high of P1.22 trillion, up 21 percent year-on-year. Banks are exposed to real estate through loans and investments in securities issued by property companies.

Lending to real estate companies reached the equivalent of 18.58 percent of all the industry’s total portfolio, up from 17.82 percent the year before but still under the 20-percent cap set by regulators.

In 2013, loans extended by universal and commercial banks grew by 16.8 percent, BSP data showed.

The rise in the banking sector’s exposure to real estate has fueled fears of an unsustainable inflation in property prices in the country—a condition referred to as a “bubble.”

If this bubble is popped, which would see prices collapse, banks might tighten their hold on cash. This credit crunch could slow the circulation of money in the economy, leading to anemic growth.

The BSP has responded to these fears by imposing new regulations that aim to keep price increases at a more manageable pace.

Last year, the BSP started stress tests to determine the industry’s capability to absorb default levels of up to a quarter of all real estate loans.

BSP Governor Amando M. Tetangco Jr. had said that the industry as a whole had enough capital to absorb these losses, based on simulations by regulators. Results of these tests are confidential due to the sensitive nature of the issue.

Also last year, the BSP restricted the acceptability of real estate assets as collateral for loans, making bank-financed home or office projects and purchases more expensive.