THE BANGKO Sentral ng Pilipinas (BSP) may soon require some banks to submit an exit strategy of sorts under a scenario where their real estate loan portfolio takes a possible hit from rising interest rates, as lending to the sector shows no sign of easing.
BSP Governor Amando M. Tetangco, Jr. said the requirement could be part of stress tests on banks the BSP will be conducting as the regulator wants to determine how lenders’ exposure to the property sector could affect their credit standing.
“We’re just about to start... We want to know the effect is of a change in interest rates and other factors that impact the real estate sector,” Mr. Tetangco told reporters on the sidelines of the 10th ASEAN Finance Ministers’ Investor Summit held in The Peninsula Manila hotel in Makati City yesterday.
“If it is significant, we may ask concerned banks to submit a plan on how to address the impact on its balance sheet,” the BSP chief said.
Rising interest rates potentially could make it more expensive for home borrowers to pay their mortgages, and for real estate companies to raise more capital to finance expansion.
Data released yesterday by the BSP showed the real estate exposure (REE) of universal, commercial and thrift banks stood at P1.006 trillion at end-2013, 7.1% more than the P939.8 billion posted in the quarter ending September 2013.
“The rise in REE was mainly driven by real estate loans (RELs) which grew by 7% to P843 billion at end-2013 from P788 billion a quarter earlier,” the central bank said in a statement.
Included in the BSP definition of real estate exposure are not just property loans but also banks’ investments in debt and equity securities that finance real estate activities. These activities range from the acquisition, construction and development of properties, as well as buying and selling, rental and management.
Property loans alone accounted for 83.8% of the banks’ exposure to the industry at end-December. Bank holdings of property-related bonds comprised the remaining 16.2% last year.
The BSP said that 60% of banks’ loans to the industry was granted to commercial entities such as land developers and construction companies.
The balance was extended to borrowers buying homes.
Still, the central bank said defaults on home mortgages “remain manageable amid the increase in real estate credit,” with these bad loans accounting of just 2.8% of big banks’ total credit to the sector, lower than the 3.2% posted at end-September last year.
On the other hand, investments in real estate securities went up by 7.8% to P163.6 billion at end-2013 from the P151.8 billion recorded during the third quarter last year.
Together, these loans tied to the real estate industry accounted for 21.8% of banks’ total loan books -- a level the BSP said was “similar” to what was recorded a quarter earlier.
BSP Deputy Governor Diwa C. Guinigundo noted, though, that the current exposure level remains manageable.
“As it is, I think there is still scope for future growth precisely because there is domestic demand for housing. And even for commercial and industrial use, you have BPOs (business process outsourcing) coming up and providing additional demand for office space,” Mr. Guinigundo said on the sidelines of the same forum.
“There is real demand. And you have a backlog in housing for socialized, economic housing, even for medium-sized housing,” he added.
The BSP has an existing 20% cap on banks’ exposure to the real estate industry. However, this limit only includes loans to the sector minus those for socialized and low-cost housing, as well borrowings through debt securities.
The central bank in 2012 widened its scope of monitoring the real estate industry. Under the new rules, banks are required to report all property loans - including those for socialized and low-cost housing developments.
More importantly, banks now have to report how much property-related bonds they have bought and their equity holdings in real estate developments.
HOME LOANS RISING
Meanwhile, the BSP yesterday also reported that consumer loans by universal, commercial and thrift banks stood at P721.54 billion at end-2013, a 14.65% increase from the P629.34 billion recorded a year earlier.
This is also 3.57% higher than the P702.56 billion posted a quarter earlier.
The bulk of loans were residential real estate loans, the central bank said.
“Figures suggest a notable increase in the purchase or rent of residences near business districts by young professionals, of luxury homes (condominiums) by high-income expatriates, and of RE (real estate) properties for the use or investment by Overseas Filipinos. Auto loans, credit card receivables and other consumer loans also rose during the period,” it added.
Despite the rise in credit, banks continued to manage non-performing loans, which only represented 5.34% of their total lending to the sector at end-2013, lower than the 6.13% registered during the third quarter last year.
“The BSP monitors consumer and other types of bank lending to ensure the banks’ adherence to high credit standards. This is essential to the BSP’s key objective of fostering financial stability,” it noted. -- B.F.V. Roc
SOURCE: Businessworld
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