Banks’ exposure to real estate sector up 15%

The exposure of banks to the real estate sector, particularly in the form of loans extended for property acquisition and investments in securities issued by property firms, rose by 15 percent as of end-June.

Data from the Bangko Sentral ng Pilipinas showed that the total exposure of universal/commercial and thrift banks to the real estate sector amounted to P472.3 billion in June, up from P410 billion in the same period last year.

The latest data were also higher by 6 percent from the P445 billion recorded as of end-March this year.

According to the BSP, the increased exposure of banks to this sector was mainly driven by the rise in demand for loans by individual borrowers for their acquisition of residential properties.

Economists said the rising demand for residential properties was supported by the sustained rise in remittances sent by Filipino migrants.

“The additional exposure for the quarter came primarily from real estate loans. Investments of banks in securities issued by real estate companies contributed a marginal increment,” the BSP said in a report.

Of the total exposure, P460 billion was accounted for by real estate loans. The balance of about P12 billion represents the share of the banks’ investments in securities sold by real estate firms.

But while the amount of exposure of the banks in the real estate sector widened in the second quarter, the share of outstanding real estate loans extended by banks declined as a proportion of the total outstanding loans extended.

This showed that while real estate loans were growing, other types of loans were also rising by an even faster pace. They said lending in general has been rising significantly this year given both the rising demand for loans and the enormous liquidity of the banking sector that allowed it to accelerate lending.

Real estate loans accounted for 14.3 percent of total outstanding loans disbursed by the banks as of the second quarter of this year, slightly lower than the 14.8 percent registered in the same period a year ago.

The BSP said the nonperforming real estate loans, or the loans that have remained unpaid for at least one month after maturity, stood at a very comfortable level of only 1.1 percent of total real estate loans.

The exposure of banks to the real estate sector is closely monitored by the BSP since developments in the real estate sector affect the performance of the banking industry.

It may be recalled that during the Asian financial crisis in the late 1990s, the inability of people to pay their real estate loans led to rising bad debts carried by banking sectors in the region. Moreover, the steep decline in prices of real properties made it impossible for banks to recover their loan losses through the sale of the properties backing these loans.

The BSP said the current exposure of the country’s banks to the real estate sector was still within comfortable level.