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Banks’ real estate exposure rises 6.8%

By Lawrence Agcaoili (The Philippine Star) | Updated February 29, 2016 - 12:00am



The BSP traced the increase to the 7.6 percent rise in real estate loans to P1.2 trillion in end-June last year accounting for 86.6 percent of the real estate exposures of the Philippine banking system. File photo

MANILA, Philippines – The real estate exposure of Philippine banks increased  6.8 percent in the second quarter of last year compared to  the first quarter amid the steady rise in real estate loans, the Bangko Sentral ng Pilipinas (BSP) reported over the weekend.

Data showed the real estate exposures of universal, commercial, thrift banks, and trust departments reached P1.4 trillion at the end of the second quarter in 2015.

The BSP traced the increase to the 7.6 percent rise in real estate loans to P1.2 trillion in end-June last year accounting for 86.6 percent of the real estate exposures of the Philippine banking system.

On the other hand, investments in real estate securities used to finance real estate activities inched up 1.4 percent to P182.6 billion and accounted for 13.4 percent of the real estate exposures in end-June last year.

Despite the increase, the BSP said the non-performing real estate loan ratio of big banks and small banks improved to 2.3 percent in end-June 2015 from 2.6 percent in end-March last year.

“The non-performing real estate loan ratio has been on a downward trend since end-December 2013,” the BSP said.

The bank regulator said it would continue to monitor 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.

“Maintaining high loan quality is essential to the promotion of financial stability, which is a key policy objective of the BSP,” the central bank added

Initial results of a stress tests conducted by banks validated the assessment made by the BSP that there are no risks from the real estate market.

BSP Deputy Governor Diwa Guinigundo earlier said initial results of the real estate stress tests conducted by banks showed the capital adequacy ratio (CAR) of banks would remain above the central bank requirement, even if 25 percent of their real estate loan portfolio turns sour.

“At this point we don’t see any signs of stress in the real estate sector,” he said.

The bank regulator has tasked banks to submit data on their real estate portfolio to include exposure in socialized housing as well as debt incurred through the issuance of bonds to finance real estate activities.

“We have now a more comprehensive definition of the exposure to real estate. It’s more dependable,” he added.

Based on the new definition of the exposure of banks to real estate, Guinigundo explained that stress tests conducted by big banks revealed their CAR would still be above the 10 percent requirement set by the BSP and the eight percent threshold set under the Bank for International Standards (BIS).

“Even if they factored in a 25 percent souring of the loans on real estate, they are still above the 10 percent regulatory capital that we imposed on the banks,” Guinigundo added.

Aside from the BIS methodology, he revealed the regulator also used the International Monetary Fund (IMF) identification of asset bubbles.

“Those two tests will show that we are far from the so-called danger level,” he added.

The CAR of big banks stood at 15.48 percent on a solo basis and 16.42 percent on a consolidated basis as of end-June last year reflecting their continuous effort to maintain adequate capital buffer against unexpected losses that may arise during times of stress.

The BSP stepped up its watch over the real estate sector as early as 2012 by ordering banks to disclose more comprehensive reports on their exposures to the  property industry.

The BSP has set the cap on real estate loans at 20 percent of the bank’s total loan portfolio.
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