By Katherine K. Chan
PHILIPPINE BANKS and trust entities’ exposure to the property sector slipped at the top of September, amid a decline in real estate investments, Bangko Sentral ng Pilipinas (BSP) data showed.
The industry’s real estate exposure ratio stood at 19.54% as of end-September, falling from 19.61% at end-June and 19.55% in the identical period a yr ago.
The BSP monitors lenders’ exposure to the actual estate industry as a part of its mandate to take care of financial stability.
Philippine banks and trust departments have prolonged P3.451 trillion in total investments and loans to the actual estate sector as of the third quarter, up by 7.19% from P3.22 trillion within the previous yr.
Based on central bank data, real estate loans climbed by an annual 8.9% to P3.096 trillion as of September from P2.843 trillion a yr ago.
Broken down, residential real estate loans rose by 11.4% to P1.188 trillion, while business real estate loans grew by 7.41% to P1.909 trillion.
Overdue real estate loans reached P158.619 billion at end-September, 7.06% higher than the P148.157 billion seen a yr earlier.
Overdue residential real estate loans edged up by 5.16% to P110.379 billion, while late business real estate loans increased by 11.7% to P48.24 billion.
Meanwhile, gross nonperforming real estate loans amounted to P116.086 billion within the nine-month period, up 4.06% from P111.554 billion a yr ago.
This brought the gross nonperforming real estate loan ratio all the way down to 3.75% as of September from 3.92% within the comparable year-ago period.
BSP data also showed that the banking sector’s real estate investments stood at P354.749 billion at end-September, 5.75% lower than the P376.406 billion recorded last yr.
This, as debt securities slipped by 5.51% yr on yr to P232.496 billion, while equity securities went down by 6.22% to P122.253 billion.
“Banks’ real estate exposure eased to 19.54% at end-September from 19.61% in June, reflecting lower investments in property-linked securities, muted project launches, and cautious lending amid elevated NPLs (nonperforming loans) and high borrowing costs,” Union Bank of the Philippines Chief Economist Ruben Carlo O. Asuncion said in a Viber message.
Jonathan L. Ravelas, a senior adviser at Reyes Tacandong & Co., said weak property demand could have weigned on the industry’s real estate exposure ratio last quarter.
“Banks are rationalizing their real estate exposure because non-performing loans are rising and developers are slowing launches amid weak demand,” he said via Viber. “The BSP’s tighter oversight adds to the caution.”
Nevertheless, Joey Roi H. Bondoc, director and head of research at Colliers Philippines, noted that bank lending to the actual estate sector typically slows within the third quarter. He noted the recent drop in lending was “not significant.”
“We now have yet to see a considerable take-up in (the) Metro Manila condominium market, especially within the pre-selling sector,” he told BusinessWorld in a phone interview. “And it only signifies that banks are still wary to lend to the actual estate sector, to the condominium sector at this point. In order that’s why, for those who take a look at the exposure of banks to real estate, it’s not a major increase or decrease. It’s almost (flat), almost the identical.”
A recent Colliers Philippines report showed that residential take-up soared by 108% within the third quarter, akin to 5,900 units from 2,800 units within the previous quarter. This was the very best take-up because the second quarter of 2023.
For the fourth quarter, Mr. Asuncion said the banking industry will likely grant more loans to the actual estate sector following the central bank’s recent rate cuts and increasing demand for residential properties and leasing.
“Exposure ratios should remain broadly stable, with banks balancing growth opportunities against regulatory limits,” he added.
The BSP last week reduced borrowing costs by one other 25 basis points (bps), bringing the important thing rate to its lowest in over three years at 4.5%. It has up to now delivered 200 bps in cuts since August last yr.
Nevertheless, Mr. Bondoc said that still-high mortgage rates are offsetting the supposed boost from lower benchmark rates of interest.
“But the issue is… the central bank has been cutting rates of interest but there isn’t a corresponding decline in mortgage rates by the banks, which again indicates that banks are still a little bit hesitant to lend to this market,” he said.
Still, Mr. Bondoc noted that vacation bonuses, higher remittances and the peso depreciation will likely spur demand within the domestic residential market.
“Q4 is a powerful quarter for condominium take-up due to bonuses for local employees and remittances from the Philippines. After which peso’s depreciating, so it is likely to be an excellent opportunity for OFWs (overseas Filipino employees) to send home more cash after which finally, for instance, reserve a condominium unit or buy a house and lot unit of their home provinces,” Mr. Bondoc said.
The peso hit the P59-a-dollar level several times in November and slumped to a fresh low of P59.22 against the greenback on Dec. 4.