Philippine banks’ exposure to real estate sector rises

The exposure of Philippine banks and trust entities to the property sector increased at the end of December amid a rise in residential and commercial real estate loans, data from the Bangko Sentral ng Pilipinas (BSP) showed.

Banks’ real estate exposure ratio rose to 19.75% as of end-December from 19.55% at end-September. However, it was lower than 20.17% in the same period in 2023.

The BSP monitors lenders’ exposure to the real estate industry as part of its mandate to maintain financial stability.

Total investments and loans extended by Philippine banks and trust departments to the real estate sector grew by 5% to PHP 3.31 trillion as of end-December from PHP 3.15 trillion in 2023.

Central bank data showed real estate loans rose by 7.9% year on year to PHP 2.95 trillion at end-December from PHP 2.74 trillion a year ago.

Residential real estate loans climbed by an annual 9.6% to P1.1 trillion, while commercial real estate loans went up by 6.9% to PHP 1.85 trillion.

Past due real estate loans amounted to PHP 140.645 billion, higher by 4% from PHP 135.261 billion a year ago.

Broken down, past due residential real estate loans rose by 4.7% to PHP 99.727 billion, while past due commercial real estate loans edged higher by 2.3% to PHP 40.918 billion.

Meanwhile, gross nonperforming real estate loans inched up by 0.4% to PHP 108.807 billion as of the fourth quarter from PHP 108.389 billion a year ago.

This brought the gross nonperforming real estate loan ratio to 3.68% at end-December, lower than 3.96% a year earlier.

On the other hand, real estate investments declined by 13.8% to PHP 353.809 billion as of end-December from PHP 410.653 billion in the same period a year ago.

Of this, debt securities dropped by 10.5% year on year to PHP 236.881 billion, while equity securities fell by 19.8% to PHP 116.928 billion.

Joey Roi H. Bondoc, director and head of research at Colliers Philippines, said the jump in real estate exposure was due to businesses expanding their operations in the latter part of the year.

“For residential, I would attribute that partly to ready-for-occupancy (RFO) units. We have a lot of RFOs now,” he said via phone call.

“Given there is a lot of supply now, a lot of these RFO promos are getting sweeter, that probably contributed to the increase,” he added.

Buying an RFO unit was much more difficult before the pandemic, Mr. Bondoc said, noting that buyers had to pay 5% to 10% of the total contract price before being able to transfer into the unit.

“Now, there are promos if you are an investor and buyer of RFOs, all you have to do is secure bank loans. Have that approved and you can transfer. You don’t have to pay a hefty downpayment,” he added.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said the rise in real estate loans is also consistent with faster growth in overall loans “making it cheaper to finance new real property developments.”

The latest BSP data showed bank lending jumped by 12.2% year on year to P13.1 trillion in December, its fastest growth in two years.

Mr. Ricafort said this may be offset by the higher vacancy rates amid the ban on Philippine offshore gaming operators (POGOs).

“Some buyers, however, would be opportunistic and snap up bargains amid higher vacancy rates and increased supply after the POGO exit,” he added.

For the coming months, Mr. Bondoc said he expects increased demand for real estate loans, especially for the residential segment as promos for RFOs are becoming more attractive.

‘We’re likely to see greater purchases of these RFOs. Since these require bank loans also, this will likely result in the exposure of real estate to the banking sector, which will bode well for the property sector in general.”

Mr. Ricafort said further policy rate cuts and reserve requirement ratio (RRR) reductions would also bolster bank lending in general.

Despite surprising markets with a policy pause last month, BSP Governor Eli M. Remolona, Jr. has said the central bank is still in easing mode, signaling the possibility of up to 50 basis points (bps) worth of cuts this year.

Last month the BSP also announced it will cut the RRR of universal and commercial banks and nonbank financial institutions with quasi-banking functions by 200 bps to 5% from 7%, effective March 28.

In 2020, the central bank raised the real estate loan limit of banks to 25% of their total loan portfolio from 20% previously to help free up additional liquidity as a relief measure during the coronavirus pandemic. — Luisa Maria Jacinta C. Jocson