Banks trim real estate exposure

Banks’ exposure to the local property sector declined in the second quarter but the proportion of soured home loans remained elevated amid a high-interest rate environment.

Data from the Bangko Sentral ng Pilipinas (BSP) showed that real estate loans of Philippine banks and trust entities amounted to P2.8 trillion, cornering 19.92 percent of total loan portfolio as of end-June.

This was a tad lower than the 20.31 percent ratio in the first quarter. The reading was also below the 20.17 percent exposure of banks to the property sector at the end of 2023.

Broken down, home loans amounted to P1 trillion in the second quarter, jumping by 8.9 percent, while credit used to buy commercial spaces grew by 6.2 percent to P1.7 trillion.

Overall, total loans and investments—both in debt and equity—extended to the real estate industry amounted to P3.16 trillion in the second quarter, up by 3.61 percent year-on-year.

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.

As it is, the BSP is now at a point where it has to undo its most forceful tightening actions in two decades, which had sent the benchmark rate to its highest level in 17 years to tame stubbornly-high inflation.

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 P70.5 billion, cornering 6.76 percent of total home lending portfolio in the second quarter. Nevertheless, that ratio was lower than the 6.97 percent recorded in the preceding three months.

Meanwhile, 2.32 percent of banks’ commercial real estate loan book had turned sour by the end of June, also easing from the 2.33 percent ratio posted as of last March. —Ian Nicolas P. Cigaral