Real estate exposure of Philippine banks eases in September

*Skyscrapers were seen at a business district in Ortigas, Pasig City on Wednesday (October 12, 2022).*

MANILA, Philippines — The exposure of Philippine banks and trust entities to the volatile property segment eased to 21.19 percent in end-September from 21.8 percent in end-June last year as the industry’s non-performing loan (NPL) ratio to the sector improved to below five percent.

Preliminary data from the Bangko Sentral ng Pilipinas (BSP) showed investments and loans extended by the banking industry to the property sector rose by 6.5 percent to P2.94 trillion from January to September last year compared to P2.76 trillion in the same period in 2021.

Lending grew by six percent to P2.51 trillion during the nine-month period last year from P2.37 trillion in the same period in 2021. Commercial real estate loans climbed up by 4.6 percent to P1.58 trillion from P1.51 trillion, while residential real estate loans went up by 8.5 percent to P933.04 billion from P859.94 billion.

On the other hand, past due real estate loans declined by 10.3 percent to P136.57 billion from P152.19 billion. This came after past due commercial real estate loans slipped by 7.1 percent to P41.36 billion from P44.52 billion, while past due residential real estate loans decreased by 11.6 percent to P95.21 billion from P107.67 billion.

As the country continues to recover from the impact of the COVID-19 pandemic, the gross non-performing real estate loans of Philippine banks retreated by 8.8 percent to P111.99 billion from P122.81.

This translated to a lower gross non-performing real estate loan ratio of 4.46 percent in end-September last year from 5.15 percent a year earlier.

On the other hand, data from the BSP showed real estate investments in debt and equity securities increased by 9.3 percent to P431.16 billion from P394.47 billion.

At the height of the global health crisis, the BSP raised the real estate loan limit of big banks to 25 from 20 percent in August 2020 to free up P1.2 trillion in additional liquidity for lending amid the uncertainties brought about by the COVID-19 pandemic.

To ensure that banks’ exposure to the property sector remains manageable, the BSP continues to maintain prudential measures including the real estate limit.

These measures also include the heightened surveillance of banks’ real estate and project finance exposures, and the real estate stress test thresholds for universal and commercial banks as well as thrift banks.

The BSP earlier reported that property prices further picked up in the third quarter of last year amid the resumption of on-site work and face-to-face classes with the lifting of strict COVID quarantine and lockdown protocols.

The latest Residential Real Estate Price Index showed an increase of 6.5 percent to 148.6 in the third quarter of last year from 139.5 in the same quarter in 2021.

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The article was originally published in PhilStar Global and written by Lawrence Agcaoili.