Banks’ property exposures up 18% as of September

The real estate exposures of banks and trust units went up by 17.87 percent year-on-year as of end-September to R2 trillion from R1.7 trillion, based on Bangko Sentral ng Pilipinas (BSP) data.

Bank proper and trust department’s real estate loans increased to R1.709 trillion during the period from R1.45 trillion same time last year. These are mostly lending by banks alone which accounted for

R1.704 trillion compared to same time in 2016 of R1.445 trillion, up almost 18 percent.

Real estate exposures are both real estate loans and real estate investments or REI. REI amounted to R295.816 billion as of end-September from R250.328 billion in 2016.

The BSP considers real estate loan exposures as still manageable since bulk of these loans are to property developers which are backed by real demand. Commercial real estate loans totaled R1.124 trillion end-September compared to homebuyers’ R585.51 billion, up 19 percent and 15.61 percent year-on-year respectively.

BSP Governor Nestor A. Espenilla Jr., in assuring the market that the economy is not overheating yet, said the credit growth is manageable backed by liquidity and economic activity. More importantly, he said current real estate prices are not misaligned from fundamental values and does not show asset price bubbles.

To ensure the BSP is reading the credit market correctly, it has recently approved a rule that revised banks’ disclosure requirements to enhance monitoring and assessments of risks on their real estate and project finance exposures.

This effectively expanded the disclosure requirements of banks’ risks reporting since according to industry sources, there is an increasing trend in banks' project finance which is a financing structure to fund crucial economic-enhancing projects such as infrastructure and power/ energy.

The expanded reporting on real estate and project finance exposures will be implemented next year, with the end-second quarter or June 30, 2018 data. Banks are however asked to start reporting by March 31 next year as a pilot run.