Banks’ exposure in real estate down to 4-year low

The exposure of Philippine banks and trust entities to the volatile property segment eased slightly to 19.92 percent of total loans as of end-June from 20.31 percent as of end-March, data from the Bangko Sentral ng Pilipinas (BSP) showed.

The ratio was also down from the 20.8 percent seen in the same period last year. It marked the lowest in more than four years or since the 19.84 percent in December 2019.

Based on central bank data, investments and loans extended to the property sector inched up by 3.6 percent to P3.16 trillion in end-June from P3.05 trillion in the same period a year ago.

Broken down, lending went up by 7.7 percent to P2.79 trillion from P2.59 trillion a year ago. Commercial real estate loans rose by 6.1 percent to P1.74 trillion, while residential real estate loans grew by 8.9 percent to P1.04 trillion.

Likewise, past due real estate loans increased by 7.1 percent to P141.25 billion. This came after past due commercial real estate loans grew by 16.4 percent to P43.36 billion, while past due residential real estate loans inched up by 3.5 percent to P97.88 billion.

The gross non-performing loans (NPLs) from the real estate sector stood at P110.86 billion as of end-June, five percent higher than the P105.63 billion in the comparable year-ago period.

Despite the pick-up in soured loans, the gross NPL ratio went down to 3.98 percent in end-June from 4.07 percent a year ago.

Meanwhile, real estate investments in debt and equity securities fell by 18.4 percent to P371.11 billion from P454.86 billion the previous year.

Michael Ricafort, chief economist at Rizal Commercial Banking Corp., said the easing exposure to the real estate sector was due to high denominator effects, with faster growth in overall bank loans.

Separate BSP data showed credit growth accelerated for a second straight month to 10.9 percent in August from 10.4 percent in July. It marked the fastest in 20 months or since the 13.7 percent expansion in December 2022 despite the high interest rate environment.

“The adoption of credit risk management based on global best practices also led to more prudent management of real estate/property exposures in view of prescribed limits/ceilings set by regulators also partly led to the decrease in the said exposures to the sector,” Ricafort said.

Source: Philstar

Bank lending growth hit a 20-month high in August

Bank lending growth hit a 20-month high in August, data from the Bangko Sentral ng Pilipinas (BSP) showed.

Outstanding loans of universal and commercial banks rose by 10.7% year on year to P12.25 trillion in August from P11.07 trillion a year ago.

This was also the fastest growth rate since the 13.7% logged in December 2022.

On a seasonally adjusted basis, big banks’ outstanding loans inched up by 0.8% month on month. Bank lending grew by 10.4% in July.

Central bank data showed outstanding loans to residents picked up by 10.9% in August from 10.4% a month earlier. On the other hand, the growth of loans to nonresidents sharply slowed to 1.5% from 9.2% in July.

Loans for production activities climbed by 9.4% year on year to P10.47 trillion in August from P9.58 trillion a year ago. It was also faster than the 8.8% clip in July.

“This growth was largely driven by loans to key industries such as real estate activities (13.2%); wholesale and retail trade, repair of motor vehicles and motorcycles (10.7%); manufacturing (9.8%); transportation and storage (23.4%); electricity, gas, steam & air-conditioning supply (7%),” the BSP said.

Double-digit increases were also seen in loans for water supply, sewerage, waste management and remediation activities (44.9%); professional, scientific and technical services (22%); and mining and quarrying (21.7%).

Meanwhile, the growth in consumer loans to residents eased to 23.7% in August from 24.3% a month prior.

This as slower loan growth was recorded in credit cards (27.4% in August from 28.2% in July), motor vehicles (19.3% from 19.9%), and salary-based general purpose consumption loans (16.4% from 16.5%).

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said the jump in lending growth was due to the BSP’s rate cut in August, its first policy reduction in close to four years.

The central bank in August reduced the target reverse repurchase (RRP) rate by 25 basis points (bps) to 6.25% from the over 17-year high of 6.5%.

The Monetary Board has two remaining meetings this year, on Oct. 16 and Dec. 19. BSP Governor Eli M. Remolona, Jr. has signaled the possibility of cutting by 25 bps at the next two meetings.

Easing inflation and further rate cuts would also “help spur greater demand for loans or credit due to lower borrowing costs,” Mr. Ricafort added.

Headline inflation eased to 1.9% in September from 3.3% in August and 6.1% a year ago. This was also its slowest print in over four years or since the 1.6% print in May 2020.

MONEY SUPPLY

Meanwhile, separate BSP data showed that domestic liquidity (M3) rose by 5.5% in August, slower than the 7.3% posted a month ago.

M3 — which is considered as the broadest measure of liquidity in an economy — increased to P17.4 trillion in August from P16.5 trillion a year earlier. Month on month, M3 slipped by 0.1%.

Domestic claims jumped by 10% in August, slower than the 11.4% expansion in July.

“Claims on the private sector grew by 11.9% in August from 12% in July (revised), driven by sustained expansion in bank lending to nonfinancial private corporations and households,” the BSP said.

“Net claims on the central government increased by 8.5% from 14.1% in the previous month (revised), due to continued borrowings by the National Government,” it added.

Central bank data showed net foreign assets (NFA) in peso terms went up by 2.4% year on year in August, much slower than 11.2% in the previous month.

“The BSP’s NFA grew by 7.7%, while the NFA of banks contracted, largely due to higher bills and bonds payable.”

Mr. Ricafort said that domestic liquidity growth could pick up after the latest cut in banks’ reserve requirement ratio (RRR).

The central bank last month said it will cut big banks’ RRR to 7% from 9.5% effective on Oct. 25.

Mr. Remolona has said that they are looking to reduce the ratio to zero within his term, which ends in 2029.

“Any further RRR cuts, which add more peso liquidity in the financial system, would be gradual in the coming years,” Mr. Ricafort added.

BAD LOANS

Meanwhile, separate BSP data showed the banking industry’s gross nonperforming loan (NPL) ratio continued to rise in August, hitting a fresh two-year high.

Preliminary data from the BSP showed the banking industry’s gross NPL ratio went up to 3.59% in August from 3.58% in July and 3.41% a year ago.

This was also the highest bad loan ratio in 26 months or since 3.6% in June 2022.

Bad loans inched up by 0.9% to P512.7 billion in August from P508.1 billion in July. Year on year, it rose by 15.8% from P442.6 billion.

Loans are considered nonperforming once they remain unpaid for at least 90 days after the due date. These are deemed as risk assets since borrowers are unlikely to pay.

In August, past due loans were up by 0.9% to P631.4 billion from P625.7 billion in July and by 19.6% from P527.9 billion a year ago.

This brought the past due ratio to 4.42% in August, higher than 4.4% in July and 4.15% a year earlier.

Restructured loans went up by 0.7% to P293.2 billion in August from P291.1 billion a month prior. Year on year, it declined by 4.2% from P306 billion.

Restructured loans accounted for 2.05% of the industry’s total loan portfolio, steady from a month ago but lower than 2.36% last year.

Banks’ loan loss reserves increased by 0.7% to P482.5 billion from P479.2 billion a month ago. It also rose by 5.8% from P456 billion year on year.

This brought the loan loss reserve ratio to 3.37%, steady from July but lower than 3.52% in August 2023.

Lenders’ NPL coverage ratio, which gauges the allowance for potential losses due to bad loans, slipped to 94.11% in August from 94.32% in July and 103.02% a year ago.

Source: Business World

Residential Buyers are Cautious

The residential property sector saw a slight decline in total residential real estate loans (RRELs) in the first quarter of 2024, attributed to fewer project launches by developers and cautious buyer behavior due to interest rates and inflation, according to Leechiu Property Consultants.

“The overall decline in loans can be attributed to both developers introducing less projects and buyers holding back on purchases because of the interest rate situation and inflation, which have been elevated for some time already,” Leechiu Director of Research Roy Amado L. Golez, Jr. said.

On July 11, Leechiu reported that the total granted RREL fell 9% to 9,064 for the first quarter of 2024 from 9,975 loans in the fourth quarter of 2023, citing Bangko Sentral ng Pilipinas data.

In the first quarter, single-detached houses accounted for 43% of the RRELs granted by housing type, followed by condominiums at 34.7%, townhouses at 22%, and duplexes at 0.3%.

Meanwhile, RRELs outside Metro Manila showed a 2% increase, while RRELs in Metro Manila went down 31%.

“For the growth of loans outside of Metro Manila, this shows the strength of the affordable and middle-income housing market,” he said.

Mr. Golez said townhouses and single-detached houses are products of affordable housing in projects outside of Metro Manila. The existing demand, especially in the Calabarzon region and Central Visayas, is due to jobs created by increased economic activity due to infrastructure development and industry.

“Cavite-Laguna Expressway (CALAX) will open a big part of northern and central Luzon to development. Right now, most of the projects that are being built by big developers or townships are hovering in Clark and Angeles City,” he said.

Condominium units saw the largest decline in granted RRELs, dropping 19%.

Mr. Golez said that in the short term, the share of condos will likely remain below average as inventory levels of condominiums are still elevated.

“But as new condominium launches start coming in because jobs created are still primarily in the Metro Manila area, this share will start to rise again.”

In the second quarter, the ready-for-occupancy units in Metro Manila totaled 578,000, with a 97% sales rate. Pre-selling units numbered 159,000, achieving a 69% sales rate.

Quezon City led in supply with 127,000 units, followed by Ortigas, Mandaluyong, and San Juan collectively offering 100,000 units. The Bay Area contributed 92,000 units to the market.

Manila added 83,000 units to the supply, while Makati and Taguig followed closely with 81,000 and 64,000 units, respectively.

Mr. Golez noted a 30% increase in condo project launches across Metro Manila to 3,530 units compared to the previous quarter, with new developments introduced in Alabang, Manila, and Quezon City.

Similarly, sales rose by 6.5% in the second quarter of this year.

Mr. Golez said he expects developers to continue to maintain a cautious stance regarding the introduction of new projects but hopes to see new projects in the second half of the year from the biggest developers.

Source: Business World