BIG BANKS still have room to expand real estate lending as latest exposure levels remain well below the 20% limit set by the Bangko Sentral ng Pilipinas (BSP), with credit growth slowing from a year ago.
Real estate loans and investments accounted for 13% of the portfolio of universal and commercial banks as of end-June — fairly manageable, the central bank said in its status report on the financial system.
Banks’ total exposure to the real estate sector reached P2.139 trillion as of end-June, 11.2% more than P1.924 trillion in the comparable year-ago period. This, however, slowed from the 18.6% credit growth in June 2017.
The BSP said slowing growth of property loans as well as consumer credit was likely the result of higher interest rates following a series of rate hikes that began in May.
The central bank raised benchmark yields by 25 basis points (bp) each in May and June, followed by back-to-back 50bp increases in August and September. The cumulative 150 bp adjustment was meant to curb inflation expectations, at a time that prices have been surging beyond the 2-4% target range for 2018.
“Such tightening of monetary policy and consequent increase in bank lending rates may have contributed to slowdown in growth of real estate and consumer loans,” the BSP said.
The central bank has tightened rules on banks’ real estate exposure as it sought to temper rapid credit growth, which some debt raters have flagged as a possible sign of an overheating economy.
Property loans handed out by big banks accounted for 13% of total approved credit, which the BSP said is comfortably within the 20% limit for such exposure.
The ratio factors in most types of real estate exposure, excluding loans to consumers for housing units and land acquisition, loans to developers building socialized units, loans backed by the Home Guaranty Corp., and loans collateralized by non-risk assets.
To add, results of the real estate stress test (REST) showed that the banking industry will remain on solid footing even if some property loans were to sour. In particular, capital buffers of these big lenders remain well above the BSP’s minimum standards as of end-June.
“[T]he results of the REST and more granular analyses of the real estate exposures of banks similarly revealed that credit exposures to the real estate and household sectors are manageable, driven by real demand, and need not warrant supervisory intervention amid low risk of sharp correction in local property prices over the medium term,” the BSP said.
In the same report, the central bank said the Philippine financial system is still sound and robust, and will remain resilient in the face of global volatility.
Industry assets, loans, investments, deposits, capital accounts and core income posted double-digit expansion rates from the previous year.
Among the key risks hounding the sector are possible faster-than-expected monetary policy tightening in the United States, prolonged global trade tensions, and rising inflation expectations amid increased world oil prices. — Melissa Luz T. Lopez

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