Banks’ real estate exposure up 20%

The exposure of banks to the real estate sector, particularly in the form of extension of property loans and investments in bonds issued by property firms, rose by nearly 20 percent in 2011 to a new record high of over half a trillion pesos.

The Bangko Sentral ng Pilipinas said the increase in the banks’ exposure to real estate came on the back of higher household incomes and increased economic activity that led to more demand for residential and commercial properties.

Data from the BSP showed that the exposure of banks—both universal/commercial and thrift banks—to the real estate sector totaled P518.6 billion by the end of 2011, rising by 19.6 percent from the P433.6 billion reported during the same period the previous year.

The latest amount was also higher by 6.8 percent from the P485.6 billion seen in September 2011.

“The combined exposure to the real estate sector of universal and commercial banks, and thrift banks breached the half a trillion mark and reached the highest level [in 2011],” the BSP said in a statement Friday.

Rise in loans for residential properties was attributed largely to growth in remittances from overseas Filipino workers. Growing household incomes, supported by remittances, allowed many Filipino households to feel confident about buying homes with the help of bank loans.

On the other hand, rise in demand for commercial properties was partly credited to sustained investments by business process outsourcing (BPO) firms.

Data showed that loans to individual and corporate borrowers to support purchases of residential and commercial properties accounted for bulk of the banks’ exposure, or P506 billion.

The small remainder came from banks’ investments in bonds issued by property firms.

Also, universal and commercial banks accounted for P398 billion of the total, having catered to large corporate borrowers.

Although banks extended more real estate loans, the BSP said, their exposure to bad debts had in fact declined.

Nonperforming real estate loans ratio—the share of soured real estate loans to total real estate loans—improved to 5 percent by the end of 2011 from the 6.8 percent of the same period the previous year, and the 5.5 percent of September 2011.

Soured loans or bad debts are those that have remained unpaid at least 30 days upon maturity.

The growth in bank loans to the real estate sector earlier elicited concerns over potential asset price bubbles, similar to what had happened in the late 1990s. But the BSP shrugged this off.

Unlike in the late 1990s when demand for properties was mostly speculative in nature, recent purchases of real estate were fueled by actual demand from households and enterprises that were in need of assets for expanded operations, the BSP explained.