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EVEN though the Philippine banking system has remained robust, the International Monetary Fund (IMF) stated that dangers in the real estate domain and consumer credits still necessitate increased scrutiny and might lead the central bank to take action.
“Risks to financial stability remain managed. The banking sector possesses adequate liquidity and capital reserves, and nonperforming loans (NPL) are minimal,” an IMF representative communicated to BusinessWorld via email.
Recent statistics from the Bangko Sentral ng Pilipinas (BSP) indicated that the banking industry’s NPL ratio decreased to a three-month low of 3.3% in March.
“Nonetheless, certain segments of the commercial real estate market have experienced persistently high vacancy rates and declining rents, while NPLs for housing loans continue to be significant,” the IMF remarked.
Property consultancy Colliers Philippines forecasts the vacancy rate for residential properties in Metro Manila to reach 26% by year-end, whereas office vacancies are anticipated to be 22% this year due to an oversupply of condominiums and slow absorption of unsold units.
In its latest Financial Stability Report, the BSP acknowledged the “increasing NPLs within the real estate sector.”
The NPL ratio for residential real estate stood at 6.82%, while NPLs for commercial real estate were at 2.18% as of September 2024. A significant portion (62.5%) of the real estate loan portfolio mainly comprises commercial loans.
The BSP had previously indicated that the mid- and low-cost housing segments, which constitute a substantial share of residential real estate loans, have contributed to the rise in NPLs.
Consumer loans also represent another area that the BSP needs to oversee, according to the IMF.
“The rapid expansion in consumer credit, although a relatively minor segment of banking assets, necessitates careful observation,” it stated.
Data from the BSP revealed that outstanding loans from universal and commercial banks climbed by 11.8% to P13.19 trillion in March compared to the previous year.
Consumer loans to residents surged by 23.6% in March to P1.64 trillion, largely due to a 28.8% rise in credit card loans to P959.43 billion.
The central bank must also be ready to intervene when required, the multilateral body asserted.
“The BSP should stand prepared to modify macroprudential policy in accordance with shifts in the financial cycle to avert the accumulation of vulnerabilities,” the IMF stated.
In the same Financial Stability Report, the BSP indicated that the financial system’s exposure to real estate loans will demand “closer observation amidst changing market conditions.”
The ratio of banks’ exposure to real estate increased to 19.75% as of the end of December compared to 19.55% at the end of September.
This aligns with total investments and loans provided by Philippine banks and trust departments to the real estate sector, which rose by 5% to P3.31 trillion as of the end of December from P3.15 trillion in 2023.
The BSP monitors lenders’ exposure to the real estate sector as part of its responsibility to sustain financial stability. — Luisa Maria Jacinta C. Jocson
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