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Real estate woes harm banks’ cleanup bid

Vol. XXII, No. 191 [ BusinessWorld Online ]

Friday, May 1, 2009 | MANILA, PHILIPPINES

BY GERARD S. DELA PEÑA, Reporter


BANKS may have a hard time cleaning up their balance sheets this year as a weaker real estate sector would make it difficult for them to dispose of their bad assets, industry officials yesterday said.

Real estate developers have adopted a prudent stance in terms of buying new properties in light of the uncertainties in the global economy, said Ramon Jose E. Aguirre, research manager at property consultancy firm Colliers International, making it hard for banks to sell their soured properties at a premium.

That could compound the problem of the banking sector that is already faced with the threat of a possible rise in loan defaults as difficult economic conditions could weigh down on the borrowers’ capability to pay their dues.

Ty-led Metropolitan Bank & Trust Co. (Metrobank), for instance, has announced yesterday a plan to sell up to P3 billion in idle assets this year out of the estimated P25 billion in real and other properties foreclosed that encumber its balance sheet.

That is lower, however, compared to the P5.8 billion worth of foreclosed assets it sold last year.

"The market is buying less. We have to be cognizant of the fact that the real estate market is on a decline in terms of uptick in new buyers," Fernand Antonio A. Tansingco, Metrobank head of treasury group and corporate planning, told reporters at the sidelines of the bank’s annual stockholders’ meeting on Wednesday.

The outlook for the real estate sector appears dire, said Mr. Aguirre.

"Sales are down, and income of developers is also slowing down. The transactions are slow even in leasing," Mr. Aguirre said in a phone interview.

"Purchasers, developers and decision makers are prudent because they are playing safe to prepare for the worse," he said.

Pressure to clean up

Banks were under pressure to clean up their books as the Basel 2 accord implemented in 2007 made it much costlier for them to keep their idle assets.

Metrobank’s non-performing asset (NPA) ratio stood at 6.3% as of end-2008. Mr. Tansingco said that while the reduction of its NPA ratio would also depend on how fast the bank will be able to grow its assets, the bank’s long-term view is for its ratio to decline to around 5%.

This is also the case for its non-performing loan (NPL) ratio, which stood at 4.5% in 2008 and was projected to decline to about 4% in the long-term.

This decline in its NPL ratio would be aided by the projected 6-8% growth in the bank’s lending for this year, which will be supported by a double-digit growth in its consumer lending business, Mr. Tansingco said.

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