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Banks’ real estate exposure a cause for concern

Published : Saturday, May 05, 2012 00:00 [ ]

AFTER the closure of Export and Industry Bank that left about 50, 000 depositors in its 51 branches nationwide in agony, the Finance Department reiterated that private banks in the country are still in good shape.

But Finance Secretary Cesar Purisima, also a member of the Bangko Sentral ng Pilipinas (BSP) policy-making Monetary Board, said in a statement that they are watching banks that are exposed to the real estate sector.

“Right now, we believe it is still within manageable levels. As of end-December 2011, the combined exposure to the real estate sector of universal and commercial banks [U/KBs] and thrift banks [TBs] breached the half trillion mark and reached the highest level at P518.6 billion,” he added.

Meanwhile, the BSP said that the exposure expanded by 6.8 percent from the third quarter of last year, when the level was at P485.6 billion, but compared to end-2010 figures, the expansion was 19.6 percent from P433.6 billion.

“Additional exposure during the quarter came exclusively from real estate loans, which grew by 7.2 percent to P505.9 billion. By industry, a significant portion of the exposure was held by U/KBs at 76.7-percent [P397.6 billion] share while the remaining 23.3 percent [P121.0 billion] was accounted for by the thrift banks,” the BSP added.

Recently, Columbia University economist Jeffrey Sachs said in an Asian Development Bank (ADB) forum that the short-term management of the real estate sector would be a challenge.

“It is a delicate balance between creating bubbles which is a tendency to turn on the liquidity when there is a slowdown. Asia needs to make sure that its own banks are not creating their own bubbles . . . Banks are very important but they run away given any leeway at all. They are gambling with other people’s money, paying the short-term benefits, leaving the long-term losses,” Sachs explained.

ADB president Haruhiko Kuroda supported Sachs’ statement, saying that even the advanced economies of Japan, Europe and the United States had difficulties in spotting bubbles and addressing them.

“I felt that a lot of lessons can be learned from the experiences of the United States, eurozone and Japan. Those economies have attained significant development. Still, they made many mistakes,” Kuroda said during the forum.

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