Bank exposure to real estate up to 19.5% in 2Q 2019 — BSP

According to the data collected by the Bangko Sentral ng Pilipinas (BSP), the country’s banking sector had as much as ₱4.12 trillion worth of loans and investments in the real estate market as of the second quarter of 2019. This figure is 7.57% higher than the ₱3.83 trillion reported in the same period last year and accounts for about 19.5% of the entire banking sector’s loan portfolio.

The rapid growth in real estate related loans and investments can be seen as a good indicator of the market’s full confidence in the long term growth prospects of the property sector. In addition, it also shows the increase in liquidity in the country’s financial and capital markets.

A brief breakdown of bank real estate exposure
The Bangko Sentral ng Pilipinas — as part of its monitoring function — requires all universal, commercial, and thrift banks to disclose the value of all real estate related loans and investments. The reason for this requirement is due to the fact that the property markets have been historically volatile. Thus, the BSP wants to make sure that banks are not putting all of their eggs in one basket.

The Bangko Sentral mainly monitors four variables: (1) Property developer loans, (2) Commercial real estate loans, (3) Residential real estate loans, and (4) Real estate related debt and equity securities investments. The total value of these four types of investments should not exceed 20% of the value of a bank’s entire loan portfolio.

Property developer loans
Financing the projects of real property developers remains to be the largest and most lucrative real estate related business for financial intermediaries. In fact, the BSP claims that banks had over ₱1.97 trillion of such loans in the second quarter of 2019. This figure represents a 7.6% jump from the ₱1.83 trillion recorded in the same period last year.

Commercial real estate loans
Financing the acquisition of office and retail spaces of businesses was the second largest real estate related exposure of banks — with as much as ₱1.26 trillion of such loans in the second quarter of 2019. For comparison, banks had commercial real estate loans worth ₱1.19 trillion in the same timeframe in 2018. These numbers represent a 5.9% increase year on year.

Residential real estate loans
Financing the purchase or construction of residential home was the smallest real estate related business of banks — with a total residential real estate loans worth ₱712.56 billion in the 2nd quarter of 2019. Despite being the smallest of the three loan segments —however, residential real estate loans grew the fastest over the past year at a rate of 10.6% year on year (from ₱644.05 billion in the second quarter of 2018).

Real estate related debt and equity securities investments
On top of the real estate loans being provided by banks, the Bangko Sentral also monitors their investments in both equity and debt securities of real estate developers. In the second quarter of 2019, these investments were reported to be approximately ₱108.35 billion. This figure represents a 6.9% jump from the ₱101.31 billion recorded in the same period last year.

Overall, total real estate exposure for Philippine banks stood at around ₱4.12 trillion by the end of the second quarter of 2019. For comparison, total real estate exposure in the same period last year was approximately ₱3.83 trillion — marking a 7.57% increase year on year. Furthermore, only 1.79% (2018 2Q) and 1.57% (2019 2Q) of these loans were deemed to be delinquent or non-performing.