Banks’ real estate exposure rises 21.55% in 2020

MANILA, Philippines — The exposure of Philippine banks in the real estate sector rose to a record high of 21.55 percent last year from 19.84 percent in 2019 and stayed within the higher end of the limit set by the Bangko Sentral ng Pilipinas (BSP).

Latest data from the BSP showed investments and loans extended by the banking industry to the property sector went up by 5.5 percent to P2.62 trillion in 2020 from P2.48 trillion in 2019.

The real estate exposure of Philippine banks last year was the highest on record from a peak of 21.04 percent in end-March 2017.

However, the level was still well within the 25 percent ceiling set by the BSP.

The BSP raised the real estate loan limit of big banks to 25 from 20 percent in August last year to free up additional liquidity for lending amid the COVID-19 pandemic.

The move released P1.2 trillion in additional funds for real estate lending.

Data showed lending to property developers went up by six percent to P2.29 trillion in end-2020 from P2.16 trillion in end-2019.

The commercial real estate loans rose by 4.3 percent to P1.46 trillion in 2020 from P1.4 trillion a year ago, while residential real estate loans jumped by 36 percent to P833.73 billion from P763.98 billion.

The BSP said the gross non-performing real estate loans of Philippine banks inched up slightly to P105.358 billion in 2020 from P37.32 billion a year earlier.

This translated to a higher non-performing real estate loans of 4.6 percent in 2020 compared to 1.72 percent in 2019.

“By economic activities, the increased NPL levels of loans for real estate activities and for household consumption mainly contributed to the growth of the banking system’s NPLs,” the BSP said.

On the other hand, real estate investments in debt and equity securities fell by 10.8 percent to P332.569 billion from P320.09 billion.

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

These measures are 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 latest real estate stress test results indicated that the stressed capital adequacy ratio and common equity tier 1 ratio of the universal and commercial banking industry remained above the minimum requirements of the BSP both for solo and consolidated bases.