Covid-19 dampens lenders’ exposure to commercial real estate
The Covid-19 pandemic grossly impacted the commercial real estate market, with lenders reducing their exposure, particularly in the third quarter of 2021. However, the Bangko Sentral ng Pilipinas expressed confidence in improved numbers once fourth-quarter data are collected as economic activities resumed.
With the virus ravaging most industries that emptied shopping centers, workplaces, and even hotels, the BSP said that on the flip side, the bank’s non-performing loan ratio to the sector improved to below five percent. This is after the exposure of Philippine banks, and trust entities to the volatile real estate and property segment eased to 21.19 percent in end-September 2022 from 21.8 percent in end-June 2022.
In one report, Unionbank of the Philippines chief economist Ruben Carlo Asuncion believes this level of exposure is “not much of a concern” as the country is still grappling with the Covid-19 pandemic, and it is only in the fourth quarter that much of the demand in the sector has returned.
“The Omicron threat may again dampen overall demand and may eventually affect demand for real estate, at least in the short term,” Asuncion added, referring to the more transmissible Covid-19 variant.
Meanwhile, BSP said it would maintain prudential measures, including the real estate limit.
The real estate stress test thresholds for universal, commercial, and thrift banks, as well as increased monitoring of banks’ real estate and project financing exposures, are also included in these measures.
Real estate exposure of Philippine banks
Preliminary data from BSP showed that the amount of investments and loans made by the banking sector to the real estate sector from January to September of last year increased by 6.5 percent to P2.94 trillion from P2.76 trillion during the same period in 2021.
From P2.37 trillion in the same nine-month period in 2021, lending increased by 6 percent to P2.51 trillion in the same period last year. While residential real estate loans increased by 8.5 percent to P933.04 billion from P859.94 billion, commercial real estate loans increased by 4.6 percent to P1.58 trillion from P1.51 trillion.
However, past-due real estate loans decreased by 10.3 percent from P152.19 billion to P136.57 billion. This followed a 7.1 percent decline in pastdue commercial real estate loans to P41.36 billion from P44.52 billion and an 11.6 percent decline in past-due residential real estate loans to P95.21 billion from P107.67 billion.
The gross non-performing real estate loans of Philippine banks decreased by 8.8 percent to P111.99 billion from P122.81 billion as the nation continues to recover from the Covid-19 pandemic’s effects.
As a result, the gross nonperforming real estate loan ratio decreased from 5.15 percent a year earlier to 4.46 percent at the end of September last year.
However, according to BSP data, real estate investments in debt and equity securities climbed by 9.3 percent, from P394.47 billion to P431.16 billion.
In August 2020, at the height of the global health crisis, the BSP increased big banks’ real estate loan limits from 20 percent to 25 percent to provide P1.2 trillion in additional liquidity for lending during the Covid-19 pandemic’s uncertain times.
Housing prices up in 3Q 2022
Despite this, BSP said in a separate report that housing prices countrywide experienced a quicker yearly growth as of the third quarter of 2022 due to persistent demand for condominiums in the National Capital Region.
The Residential Real Estate Price Index increased 6.5 percent year-on-year in the third quarter, quicker than the 6.3 percent expansion from July to September in 2021 and the second quarter’s 2.6 percent growth.