Friday, September 11, 2009 | MANILA, PHILIPPINES [ BusinessWorld Online ]
LOCAL BANKS’ exposure to the real estate sector grew by close to a quarter at the end of the first half, boosted by loans extended in the period despite the tightening of lending standards for residential and commercial borrowers, central bank data showed.
Data released yesterday by the Bangko Sentral ng Pilipinas (BSP) showed that total exposure of universal, commercial and thrift banks to the real estate sector reached P377.8 billion at the end of June.
This was a 2.8% expansion from the P367.6 billion recorded at the end of March, and a 23.3% growth over the P306.3 billion in June of last year.
Banks’ exposure to real estate is composed of loans for commercial and residential purposes and investments in securities issued by real estate firms.
In a statement, the BSP said the increase came solely from a 22.7% year-on-year and a 3.3% quarter-on-quarter expansion in real estate loans to P368.9 billion, making up close to 98% of banks’ total exposure.
"This more than offsets the decline in investments in securities issued by real estate companies by P900 million to P8.9 billion," the BSP said.
Universal and commercial banks’ exposure summed up to P273.4 billion, 72.4% of the total.
With the expansion, the ratio of real estate loans to total loans extended by universal, commercial and thrift banks inched up to 14.4% from 14.1% in the previous quarter and from 13.1% a year before.
University of Asia and the Pacific economist Victor A. Abola, however, said at current levels, lending to the real estate sector was not likely to cause an asset bubble seen in the Asian financial crisis more than a decade ago.
"I don’t think there’s a danger since these loans are not for speculative purposes. These are usually end-user related," he said.
In the years leading up to the 1997 Asian crisis, the Philippines experienced a boom in real estate values, enticing investors to make speculative bets.
But high interest rates resulting from the crisis in the late 1990s made it hard for borrowers to meet maturing obligations, causing a massive level of defaults.
Mr. Abola noted that houses that have sold best were usually in the P3-million price range, which are not the typical purchases for investors betting on future price increases.
He also said the cap on real estate exposures for banks at 20% has been effective so far in averting an inflation in housing values.
"Before the crisis, it exceeded 20%, which was why the BSP put a cap," he said.
More than 70% of loans extended by universal and commercial banks were intended for commercial purposes, while the balance went to residential expenses.
In contrast, 85.6% of real estate loans given by thrift banks went to residential borrowers, and 14.4% to commercial borrowers.
In total, 55.3% of real estate loans extended by thrift and universal and commercial banks went to commercial borrowers, while the rest, at 44.7%, went to households.
Meanwhile, delinquent real estate loans fell by 3.9% to P24.3 billion, from P25.3% in the first quarter. This, however, represented a 4.3% increase over the P23.3 billion in non-performing real estate loans recorded a year before.
As a result, non-performing real estate loans as ratio to total real estate loans improved to 6.6% from the previous quarter’s 7.1% and the 7.7% the year before.
The ratio for universal and commercial banks landed at 6% at end-June, which was down from 6.6% in the first quarter.
This compared to the 8.1% ratio of soured real estate loans (down from 8.4% in the first quarter) recorded for thrift banks. — Paolo Luis G. Montecillo
_____________________________________________________________________________________
