, Philippines

Surge in Philippine property prices threaten banking system

A boom in the POGO sector led to a 10% YoY rise in residential real estate prices in Q3 2019.

Philippine property prices have been surging over the past three quarters, posing a threat to the country’s banking system and market stability, a Fitch Ratings report said.

Philippine banks’ exposure to the real estate sector has been stable at around 20% of total bank loans since 2015, but credit growth has been high at 14% system credit CAGR from 2015 to Q3 2019. Credit implications on the banks will depend partly on their underwriting standards, the report said. Relaxing loan-to-value (LTV) limits or debt-service ratios, or moving towards excessive loan tenors could affect their rating profiles.

A boom in the Philippine offshore gaming operators (POGO) sector has led to a 10% YoY increase in national residential real estate prices in Q3 2019, with condominium prices in the capital region ballooning by an unsustainable 34% YoY. It also partly reflects a 75bp decline in policy interest rates since April 2019.

Prolonged rapid house price inflation can push borrowers to take on more debt to afford increasingly expensive homes, and developers to over-invest in future supply, the report noted.

“Both trends have a tendency to raise private-sector leverage, making the economy more susceptible to downside risks. Studies show that asset bubbles fuelled by credit booms typically lead to deeper and longer downturns,” Fitch said.

Fitch suggests a regulatory requirement that banks demonstrate common equity Tier 1 and total capital ratios of 6% and 10%, respectively, after writing off 25% of their real-estate exposures. This should help ensure that loss-absorption buffers keep pace with their exposure to the sector, they said.

Photo courtesy of Pexels.com.
 

Join Asian Banking & Finance community
Since you're here...

...there are many ways you can work with us to advertise your company and connect to your customers. Our team can help you dight and create an advertising campaign, in print and digital, on this website and in print magazine.

We can also organize a real life or digital event for you and find thought leader speakers as well as industry leaders, who could be your potential partners, to join the event. We also run some awards programmes which give you an opportunity to be recognized for your achievements during the year and you can join this as a participant or a sponsor.

Let us help you drive your business forward with a good partnership!

Top News

What is Lorem Ipsum?
What is Lorem Ipsum? Lorem Ipsum is simply dummy text of the printing and typesetting industry. Lorem Ipsum has been the industry's standard dummy text ever since the 1500s, when an unknown printer took a galley of type and scrambled it to make a type specimen book. It has survived not only five centuries, but also the leap into electronic typesetting, remaining essentially unchanged. It was popularised in the 1960s with the release of Letraset sheets containing Lorem Ipsum passages, and more recently with desktop publishing software like Aldus PageMaker including versions of Lorem Ipsum.

Exclusives

Sed molestie interdum dui sit amet egestas
It is a long established fact that a reader will be distracted by the readable content of a page when looking at its layout.
CIMB Niaga leads the way in captivating Indonesia’s youth
The bank’s digital solutions are winning over younger generations with 3.2M mobile users and 96% digital transaction rate in 2023.