PH banks cut exposure to property sector in Q3

Banks cut their exposure to the volatile property sector in the third quarter to hit the lowest level in five years, with the proportion of soured home loans posting an uptick and staying elevated as financial conditions remained tight.

Latest data from the Bangko Sentral ng Pilipinas (BSP) showed real estate loans of local banks and trust entities amounted to P2.84 trillion as of end-June, accounting for 19.55 percent of the industry’s total lending portfolio.

That ratio was lower than the 19.92-percent recorded in the previous quarter. At the same time, this was the smallest exposure of banks to the sector since the third quarter of 2019, when the share of real estate loans stood at 19.50 percent.

READ: Banks trim real estate exposure

Broken down, housing loans were up by just 2.2 percent quarter-on-quarter to P1.07 trillion, while credit used to acquire commercial spaces increased by 2 percent to P1.78 trillion.

Overall, total real estate loans and investments—both in debt and equity—of the local banking sector amounted to P3.2 trillion, up by 2 percent.

Figures showed that banks reduced their exposure to the real estate sector as they continued to deal with defaulting home borrowers, as many might have struggled to pay their mortgages due to high interest rates and inflation.

At present, the benchmark rate that banks typically use as a guide when charging interest on loans stood at 6 percent following two quarter-point cuts each at the last August and October meetings of the Monetary Board (MB).

And a third reduction is likely on the table at the Dec. 19 meeting of the MB after the economy posted a weaker-than-expected growth in the third quarter while inflation posted a mild uptick.

The BSP reported that residential real estate loans that are deemed nonperforming—or 90 days late on a payment and at risk of default—amounted to P72.74 billion, cornering 6.82 percent of total home lending portfolio in the third quarter. That bad loans ratio was larger than the 6.76 percent recorded in the preceding three months.

Meanwhile, 2.18 percent of banks’ commercial real estate loan book had turned sour by the end of September, easing from the 2.32 percent ratio posted as of last June.