Banks’ property exposures up 12% at trillion

Banks’ real estate exposures totaled 11.93 trillion in the first six months, up 12.20 percent year-on-year, data from the Bangko Sentral ng Pilipinas (BSP) said.

With banks’ trust units, lending to the real estate sector went up by 11.18 percent year-on-year to 12.14 trillion.

Bank proper real estate loans (REL) increased to 11.83 trillion as of end-June from 11.63 trillion same period in 2017, while real estate investment (REI) went up to 1101.3 billion from 185.76 billion.

Including trust departments of banks, REL totaled 11.84 trillion while REI was at 1302.51 billion, higher than June 2017’s 11.64 trillion and 1279.83 billion, respectively.

Real estate exposures as residential REL increased by 14.95 percent during the six-month period to 1645.24 billion, BSP data show.

This is both for bank proper and trust departments. Commercial REL also rose by 10.18 percent year-on-year to 11.19 trillion.

REI, which are debt and equity securities, ended mixed. Real estate exposures as debt securities went up by 13.60 percent year-on-year to 1195.83 billion as of end-June, but equity securities was down 0.72 percent to 1106.68 billion.

The total residential RELs to total loan portfolio continue to be manageable.

This stood at 19.92 percent, lower than same time last year of 20.79 percent. The loan quality and the nonperforming residential REL ratio remained steady.

The BSP is currently readying a new stress test for bank’s real estate exposures to determine extent of interconnectedness and as additional warning sign for systemic risk build up.

BSP Assistant Governor Johnny Noe E. Ravalo for the Office of Systemic Risk Management said they are working with the Housing and Land Use Regulatory Board – as the quasi-judicial agency in charge of real estate and housing development – to survey the property sector for the stress test.

Ravalo said the data will be more a granular reporting of the real estate development, the locations of these development and areas where there may be more supply than demand, and assess the level of “over or under” saturation.

He said the BSP wants to deepen its understanding of how the property market is “interconnected with everybody else”.

The real estate sector is one of five economic activities identified by the BSP as dominating about 60 percent of total bank lending.

It said in its 2017 Financial Stability Report that this is a concern since the “fairly heavy concentration makes the banking system prone to risks”.

Based on the latest Residential Real Estate Price Index (RREPI) of the BSP, with the additional supply in the sector, this “supply-side factor suggests that the vulnerabilities may not necessarily be evident in sharp upward price movements.”

The RREPI has noted that real estate prices have increased across all types of housing units, except for prices of condominium units but “some caution should nonetheless be taken since risks may come from the build up of supply rather than an outright price bubble,” according to the report.