Banks' real estate exposure rises in Q1

Posted at 08/09/14 9:28 AM

MANILA, Philippines - Banks’ exposure to the real estate sector continued to rise in the first quarter, the Bangko Sentral ng Pilipinas said yesterday.

The real estate exposure (REE) of universal, commercial, and thrift banks climbed 2.9 percent to P1.035 trillion in the first quarter from P1.006 trillion in end-2013.

“The increase was mainly due to the banks’ real estate loans, which expanded 2.8 percent to P866.6 billion in March this year from P843 billion in December last year,” the BSP said. Loans to the property sector made up 83.7 percent of banks’ REE in the first quarter.

Credit extended to land developers, construction companies and other corporate entities accounted for 60 percent of the total loans for the sector, while the remaining 40 percent were borrowed for residential properties.

Apart from loans, the REE is made up of investments in real estate securities, which increased 3.1 percent to P168.6 billion in end-March from P163.6 billion in end-2013. These investments made up 16.3 percent of the total REE in the first quarter.

“The Bangko Sentral ng Pilipinas assesses banks’ exposure to the different sectors of the economy as part of its continuing efforts to maintain the stability of the Philippine financial system,” the central bank stressed.

In the first quarter, the REE accounted for 21.3 percent of the banks’ total loan portfolio during the period.

But the BSP stressed that the exposures of universal and commercial banks to real estate loans, which is subject to a 20 percent cap, only reached 10.7 percent during the period.

The central bank further noted the non-performing real estate loans of universal, commercial, and thrift banks represented 2.77 percent of the total borrowings extended for the property sector in the first quarter. This is slightly lower than the 2.8 percent seen in end-2013.

“The banks’ non-performing real estate loans have been on a downward trend since 2012,” the BSP recounted.

The BSP last month required banks to undergo a separate stress test in order to assess the impact of their exposure to the real estate sector once borrowers fail to service their loans.

Under BSP Circular No. 839, banks should be able to maintain a common equity tier 1 capital ratio of at least six percent and a minimum risk-based capital adequacy ratio of 10 percent even if 25 percent of a lender’s exposure to the property sector has been written off.

There would be a quarterly report submitted before the Monetary Board regarding the new stress test for banks. Those found non-compliance will be given the chance to explain and submit an action plan to address their shortcomings.