Unpaid real estate loans surge to P1.71T from Jan-Sept 2017

Outstanding real estate loans further rose to P1.71 trillion at the end of the first nine months even as its share to banks’ total loan portfolio slightly decreased.

The latest Bangko Sentral ng Pilipinas (BSP) data showed that banks and trust departments’ lending for real estate activities as of September increased from P1.644 trillion at end-June and P1.595 trillion in March.

In September, banks’ real estate loans stood at P1.705 trillion, while trust departments had P4.95 billion.

Of the total real estate loans, the bulk or P1.124 trillion went to commercial projects, while P585.5 billion were borrowed for residential projects.

But since the Philippine banking system’s total loan portfolio also increased, the real estate exposure declined to 19.28 percent at end-September.

In June, the ratio of real estate loans to the total loan portfolio was 20.79 percent, also lower than March’s 21.04 percent.

To avoid a property bubble, the BSP put in place stricter oversight of bank exposure in real estate financing last September.

The Monetary Board, the BSP’s highest policymaking body, had approved enhancements to the prudential reporting requirements in order to strengthen oversight of banks’ real estate and project finance exposures.

Specifically, the BSP had ordered banks to report granular information on real estate loans not only to socialized and low-cost housing but also to the mid- and high-end segments.

Also, the BSP had ordered banks to report commercial real estate loans, including those covering commercial-built residential units, office buildings, shopping malls, as well as factories and manufacturing plants and facilities.

“Universal and commercial banks (U/KBs) shall also be required to submit a new Report on Project Finance Exposures which shall include information in terms of type of infrastructure project and project phase. This report will enable the BSP to obtain a better grasp of the extent and quality of U/KB exposures to project finance, especially since demand for project finance is expected to increase and gain further traction as the country moves towards achieving its infrastructure goals,” the BSP had said.

The BSP had ordered the submission of the new reports starting the second quarter of 2017, following a pilot submission covering the first quarter.

According to the BSP, “the enhancements to banks’ disclosure requirements aim to further dimension risks faced by banks on their real estate and project finance exposures.”

“These measures supplement the existing regulatory framework governing real estate exposures of banks. This framework consists of the real estate loan limit of 20 percent of total loan portfolio, net of interbank loans, as well as the real estate stress test limits which were adopted in pursuit of the BSP’s objective of fostering financial stability,” according to the BSP.          /kga