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Banks’ real estate exposure hits P1.1t

By Julito G. Rada | Nov. 23, 2014 at 11:20pm []

Banks’ exposure to the real estate sector continued to rise this year, as it breached the P1-trillion mark for the first time in the second quarter, the Bangko Sentral said over the weekend.

Data showed total real estate exposure of universal, commercial and thrift banks hit P1.097 trillion in the second quarter, up 6 percent from the first quarter. It also jumped 21.9 percent from a year ago.

“The REEs of U/KBs and TBs represented 21.8 percent of their total loan portfolio in June, marginally higher than the 21.3 percent recorded a quarter earlier,” the Bangko Sentral said in a statement.

“The banks’ REEs expanded amid a rise in real estate loans [RELs], which comprised 84 percent of their REEs,” it said.

Banks’ real estate loans increased 6.7 percent to P924.3 billion in June this year from March. Land developers, construction companies and other corporate entities obtained 60 percent of the RELs, while borrowers acquiring residential properties received the remaining 40 percent.

Investments in real estate securities increased 2.6 percent to P172.9 billion in June 2014. Said investments represented the remaining 16 percent of the REEs during the period.

Bangko Sentral said while real estate exposure rose steadily since 2012, non-performing real estate-loans followed a decreasing trend.  “At end-June this year, the non-performing RELs of U/KBs and TBs comprised 2.64 percent of their RELs, lower than the 2.77 percent posted a quarter earlier,” it said.

The Bangko Sentral said it monitored the real estate exposures of universal, commercial and thrift banks as part of its broader role of assessing the quality of the banks’ exposures to the different sectors of the economy.

The Bangko Sentral last month issued revised rules on bank lending, focusing on the ability of the borrower to pay, and not collateral, as the basis of loan approvals.

It also intends to cap the value of real estate mortgage as collateral at 60 percent in securing loans.

Moody’s Investors Service said “the new regulation is credit positive for Philippine banks because it will require them to cap the value of real estate collateral and will accelerate loan-loss provisioning for distressed loans.”

“The regulation will also reduce banks’ credit risk concentration among borrowers in interconnected industries,” Moody’s said.

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