Vol. XXI, No. 169 [ Business World Online ]
Monday, March 31, 2008 | MANILA, PHILIPPINES
WHILE PHILIPPINE banks are not likely to suffer from subprime-related problems in the US, they may be prone to risks in residential lending because of the market’s high volatility, analysts said.
Victor A. Abola, an economist at the University of Asia and the Pacific, said that while Philippine financial institutions have very little exposure to subprime-related instruments, they are prone to risks in residential lending.
"There’s very little exposure to subprime-related instruments. Were very insulated," he said.
"However, financial institutions all over the world have become risk averse. Local banks are risk averse to corporate lending. Everybody’s into consumer lending. There are not a lot of avenues where they can put their money, so profits will not be so big this year."
"They might be prone to risks in residential lending. This market is highly volatile," he added.
Claro Cordero, a property consultant at Leechiu & Associates, noted a higher level of risk aversion among banks.
"I think the level of risk aversion has gone up. Real estate firms are studying their options, banks have been issuing stricter requirements," he said.
Ryan Isip, a property consultant at CB Richard Ellis, said that banks are facing a slew of bad loans owing to more loan takeouts and longer payment terms.
He noted that average lending rates have gone down from an average of 11% in 2006-2007 to only 6% to 9% in this year, spurring more borrowings, while loan terms have become lenient, extending beyond 10 years.
"We see an increase in banks’ bad loans because of increased lending and availablity of finance. We see this happening for the next three years," he said.
Data from the Bangko Sentral ng Pilipinas showed that the outstanding loans of commercial banks, thrift banks, and rural banks In January expanded by 9.3% compared to the 5.8% growth registered in the same month a year ago.
Emilio Antonio Jr., also an economist at the University of Asia and the Pacific, said that the risk in real estate lending this year may also be caused by the strengthening of the peso and its impact on overseas Filipino workers.
"If there is any risk in real estate lending, it is the strengthening of the peso because after all, OFWs mostly pay for it (residential loans). But then, these risks are still manageable," he said.
BSP data showed that banks’ real estate exposure widened last year. — Czeriza S. S. Valencia
Real estate exposure in form of loans and investments in equities rose to P225.8 billion as of end-December, up P5.8 billion from the previous quarter, and from P220 billion in 2006.
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