Banks’ real estate exposure up 23.6%


Philippine banks’ exposure to real estate surged by 23.6 percent year on year as of end-September 2015, data from the Bangko Sentral ng Pilipinas (BSP) showed, with loans accounting for the bulk but also marking a drop with respect to soured transactions.

An analyst said the rise in banks’ real estate exposure (REE) could have driven by investors anticipating higher global interest rates.

Latest central bank data showed the REE of universal, commercial and thrift banks at P1.432 trillion as of the end of September, up by P273 billion from the P1.159 trillion recorded a year earlier.

From the previous quarter, the REE was up 5.4 percent from P1.359 trillion.

“The increased percentage of real estate exposure could mean that savvy investors booked loans in anticipation of higher global interest rates ahead of the Fed rate hike,” said Nicholas Antonio Mapa, associate economist at the Bank of the Philippine Islands.

Accounting for the bulk of the total, real estate loans made up 86.1 percent of the banks’ REE, while securities investments accounted for the remaining 13.9 percent.

The loan component of the total exposure rose by 26.2 percent to P1.233 trillion from P977 billion a year earlier and by 4.8 percent from the preceding quarter.

Commercial real estate loans accounted for 65.3 percent of the total loans, while borrowers acquiring residential properties took the remaining 34.7 percent.

“As such, loans to the real estate sector both on the retail and corporate expansion level increased to take advantage of the then lower interest rates,” Mapa said.

Investments in real estate securities, meanwhile, grew by 9.7 percent to P199 billion at the end of the third quarter from P182 billion a year earlier. Compared with the preceding quarter, it was up by 9.8 percent.

The central bank data also indicated that banks’ credit positions with respect to real estate exposure improved despite the increase in REE.

Non-performing real estate loans accounted for 2.2 percent, down from 2.6 percent in the previous year.

“The lower bad loans ratios also allude to the fact that incomes are better places and or investors are more savvy now in order to service loans in a timely fashion,” BPI’s Mapa said.

He said the latest REE data boded well for the economy.

“Despite increased exposure to the real estate sector, consumers appear to be better able to withstand the period of higher interest rates we have just entered,” he said.

“In the past, both here and abroad, the precursor to an economic downturn would usually involve a housing market crash, followed by a banking sector crash due to the exposure to real estate,” Mapa noted.

With this, he said it was very important that the central bank keep up its vigilance in policing the sector

In December last year, the United States Federal Reserve announced its first interest rate increase in more than nine years in a landmark move signaling the US has finally moved beyond the 2008 crisis.

The Fed raised its benchmark federal funds rate, locked near zero since the financial crisis, by a quarter point to 0.25-0.50 percent, saying the world’s biggest economy is growing solidly.


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