Lenders’ exposure to real estate is increasing

PHILIPPINE banks’ exposure to the real estate industry increased by 7.06 percent year-on-year as of the end of March this year, with loans accounting for the majority.

Real estate exposure from banks and trust departments rose to 2.85 trillion pesos by the end of March 2022, up from 2.66 trillion pesos a year ago, according to the latest data from Bangko Sentral ng Pilipinas.

Of this, 86.21 percent was real estate loans and 13.78 percent financial investments.

The credit component of the total exposure rose 7.31 percent to 2.46 trillion pesos from 2.29 trillion pesos a year ago. Borrowers who bought homes received 36.92 percent of total loans, while those who bought commercial properties received 63.07 percent.

Commercial real estate loans rose 6.89 percent year-on-year to 1.55 trillion pesos at the end of March from 1.45 trillion pesos a year earlier. Residential mortgage lending, meanwhile, rose 8.03 percent year-on-year to P908.66 billion from P841.07 billion.

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Non-performing loans, on the other hand, grew 12.95 percent to P124.02 billion by the end of March 2022, accelerating from P109.24 billion a year earlier. As a result, the overall ratio of non-performing home loans to total home loans rose to 5.04 percent, up from 4.79 percent a year ago.

Investments in real estate securities, meanwhile, rose 5.57 percent year-on-year to 393.54 billion pesos from the end of March 2021.

Banks are safe, as the central bank has previously stressed, and have adequate buffers against a possible downturn in the real estate market.

“The latest real estate stress test results show that banks remain adequately capitalized against a potential downturn in the real estate market,” said Benjamin Diokno, governor of Bangko Sentral.

He noted that assuming a 25 percent write-down on real estate exposures, post-shock capital adequacy ratios for universal and commercial banks, including subordinate savings banks, remain well above the 10 percent regulatory minimum.

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