Banks real estate exposure grows

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Banks’ exposure to real estate rose 2.9 percent in the first quarter of 2014 from the previous quarter, but maintained the proportion of such loans to their total end-March loan portfolio as it was at end-December last year, the central bank said on Friday.

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The real estate exposure (REE) of universal, commercial and thrift banks in the country stood at P1.035 trillion in the first three months of the year, Bangko Sentral ng Pilipinas (BSP) data shows.

The end-March REE was 2.9 percent higher than the P1.006 trillion exposure in the fourth quarter of 2013. The REE of universal, commercial and thrift banks refers to the sum of real estate loans and investments in real estate securities.

REE covers loans to developers of socialized and low-cost housing, loans to individuals, loans supported by non-risk collaterals or the Home Guaranty Corp. guarantee, as well as investments in securities to finance real estate activities and exposures by bank trust departments.

The BSP said the REE represented 21.3 percent of the banks’ total loan portfolio in March, similar to the figure recorded at the end of last year.

However, the exposure of commercial banks to commercial real estate lending, which is subject to a cap of 20 percent under central bank Circular 600, remains at 10.7 percent, it added.

The central bank traced the increase in banks’ REE mainly to lenders’ real estate loans (RELs), which expanded by 2.8 percent to P866.6 billion in March this year from P843 billion in December last year.

Loans to real estate sector represented 83.7 percent of banks’ exposure to real estate, the BSP said.

Loans granted to land developers, construction companies and other corporate entities represented 60 percent of the RELs while the remaining 40 percent went to borrowers acquiring residential properties.

Investments in real estate securities, meanwhile, rose by 3.1 percent to P168.6 billion at end-March from P163.6 billion a quarter earlier. Investments in real estate securities accounted for 16.3 percent of the REE during the period.

Meanwhile, banks’ non-performing loans to real estate at end-March this year represented 2.77 percent of their RELs, marginally lower than the 2.80 percent recorded a quarter earlier, the central bank data showed.

“The banks’ non-performing RELs have been on a downward trend since 2012,” the BSP said.

The assessment of banks’ exposure to the different sectors of the economy is part of BSP’s continuing efforts to maintain the stability of the Philippine financial system, it said.

In June, the BSP announced the new stress test requirements for banks that have REE, which are bound to make the financial sector more careful about too much exposure to real estate credit risk.

Under the new measure, banks will undergo stress tests to determine whether their capital levels are sufficient to absorb the risk from their real estate lending. It requires banks to assume a write-off of 25 percent of their property exposure, and imposes minimum capital thresholds of a 6 percent common equity Tier 1 (CET1) ratio and a 10 percent total capital ratio after incorporating the effect of the stressed losses on the banks’ capital.

The requirements took effect on July 19.

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