Banks’ exposure to real estate grew in Q1

MANILA, Philippines — Exposure of the banking industry to the real estate sector grew by the end of the first quarter in 2011 from a year ago as rising liquidity prompted banks to lend and invest more, data from the Bangko Sentral ng Pilipinas showed.

The term “exposure” is measured in terms of real-estate loans, both for purchasing residential and commercial properties, extended by banks and of investments by banks in bonds and equities issued by real estate firms.

Industry players said rising incomes within the economy have been boosting savings, and the resulting increase in bank deposits has allowed banks to lend more and to buy more portfolio instruments. They said the relatively low interest rate environment was also boosting demand for housing loans.

Data from the Bangko Sentral ng Pilipinas showed that as of the end of March this year, exposure of universal, commercial, and thrift banks to the real estate sector was valued at P444.9 billion, up by 11 percent from P400.7 billion in the same period in 2010.

“Exposure to the real estate sector increased anew,” the BSP said in a report.

Of the first quarter amount, the bulk of P433.055 billion was accounted for by real estate loans, while the balance of P11.85 billion was in the form of bonds and equities issued by real estate firms and bought by banks.

On a quarter-on-quarter basis, exposure of the banking industry to the real estate sector likewise rose. As of the end of December, the exposure was valued at P433.59 billion.

The increase in exposure influenced a slight increase in the bad debts carried by banks. Data showed that as of the end of March, non-performing real estate loans was equivalent to 6.05 percent of all real estate loans, with the ratio rising from 5.98 percent as of the same period in 2010.

Industry players expect banks to extend more real estate loans and other types of loans this year, aided by a generally more optimistic outlook on the economy.

Given the growth projections for the economy, banks are confident of being able to collect loan payments on time, industry players believe.

They also said the fact that remittances from overseas Filipino workers have remained robust and that interest rates have stayed low made households more confident about securing loans to purchase residential properties.

Until late March, the BSP’s key policy rates, which influence commercial interest rates, had been at historic lows.

The BSP had been keeping rates low with the intention of spurring demand for loans, and thus boosting growth of the overall economy amid an uncertain global setting.

On March 24, however, the BSP raised its policy rates by 25 basis points. The move was followed by another 25-basis-point rate hike in May.

The purpose of the rate hikes was to keep inflation from breaching target levels, as rising global oil prices and growing consumption demand was pushing overall increase in consumer prices.