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Bank exposure to real estate up 11%

By Lawrence Agcaoili (The Philippine Star) Updated July 07, 2011 12:00 AM 

MANILA, Philippines - The exposure of the local banking industry to the real estate sector expanded by 11 percent to P444.9 billion in the first three months of the year from P400.66 billion a year ago as banks offer competitive interest rates for real estate loans, the Bangko Sentral ng Pilipinas (BSP) reported yesterday.

The real estate exposure of universal and commercial banks rose 13.2 percent to P330.69 billion from P291.97 billion and accounted for 74.3 percent of the industry’s total real estate exposure while that of thrift banks inched up by 5.1 percent to P114.21 billion from P108.69 billion for a 25.7 percent share.

“Majority of the real estate exposure were real estate loans capturing 97.3 percent share while the remaining 2.7 percent were in the form of investments in securities issued by real estate companies,” the BSP stressed.

The central bank data showed that real estate loans extended by universal, commercial, and thrift banks surged 11.6 percent to P433.05 billion as of end-March from P387.94 billion as of end-March last year. Of the total real estate loans, about 93.7 percent or P405.63 billion are current while 6.3 percent or P26.21 billion are non-performing.

This translated to a 14.73 percent ratio between real estate loans and the banking industry’s total loan portfolio in the first quarter of the year from 15.22 percent in the same quarter last year.

The ratio was well within the limits set by the BSP. Real estate loans are used to finance the acquisition, construction, and improvement of residential units as well as construction of properties for commercial purposes increased by seven percent to P115.5 billion from P107.9 billion.

The BSP first decided to limit the banking sector’s exposure in real estate following the collapse of the property sector in 1997 that left banks holding large amounts of non-performing assets that the industry is still trying to unload to date.

Monetary authorities imposed a single 20-percent overall limit on the real estate lending of universal and commercial banks in 1997 primarily as a prudential safequard against over-concentration of credit to commercial lending.

However, the BSP eased the restrictions on banks’ exposure in the real estate sector in 2008 by excluding private housing and public infrastructure construction loans from the 20 percent ceiling.

Until now, the BSP continues to monitor the exposure of banks to the real estate sector for indications of either an asset bubble or a breakdown in asset quality.
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