Growth of banks’ real estate loans cools

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model house
Photos of model housing units catch the attention of a man at a shopping mall in Mandaluyong City in this Oct. 26, 2014 photo.

By Melissa Luz T. Lopez
Senior Reporter

BANKS handed out more loans for real estate in 2017, although growth eased from the preceding year as the Bangko Sentral ng Pilipinas (BSP) tightened its watch on the sector.

Philippine banks had P2.078 trillion in total real estate exposure as of end-December, 14.7% more than the P1.812 trillion in 2016, according to latest data the central bank released on Thursday. Growth eased from the 19.5% pace recorded in 2016.

Last year’s increase was driven by a 16.3% hike in property loans handed out by universal, commercial and thrift banks that reached P1.801 trillion, from P1.549 trillion a year prior.

Lending for commercial property accounted for two-thirds of the total at P1.193 trillion, up by 17% from P1.019 trillion extended in 2016.

On the other hand, home loans grew 14.8% to reach P608.142 billion, versus P529.904 billion in 2016.

Loans accounted for 20.6% of the banks’ total real estate portfolio, lower than the 20.77% share posted in 2016.

Despite the pickup in lending, bad debts grew by a modest 2.2% to P29.46 billion, accounting for just 1.64% of total loans.

The BSP requires banks to keep their real estate exposure to a maximum of 20% of their loan books, as part of risk management.

The central bank has been closely monitoring the property market since the 1997 and the 2008 global economic crises.

In 2017, the BSP issued tighter rules for real estate exposures as it sought to clip the double-digit credit growth in this sector. Circular 976, issued in October last year, required the reporting of more specific data on real estate loans covering mid- and high-end housing units, as well as socialized and low-cost housing. Data on commercial real estate loans in terms of specific structures being financed such as residential units, office buildings, malls and factories are also to be included in regular reports required by the central bank.

Meanwhile, investments in property-related securities and other assets rose 5.3% to P276.968 billion from 2016’s P263.107 billion.

Economists and property developers have sought to allay concerns about an asset bubble in the Philippines, noting that actual demand for residential and commercial space has been driving prices up rather than speculation.

A bubble forms due to perceived rising demand in housing units that drive developers to build more units, and is said to “burst” as demand suddenly stagnates and leads to an abrupt drop in property prices that, in turn, could jolt the health of exposed banks.

Housing prices dropped by 4.6% between April and June, according to results of the central bank’s latest residential real estate price index.