Banks’ real estate exposure edges up at end-March

By Katherine K. Chan, Reporter

PHILIPPINE BANKS and trust entities’ exposure to the property sector inched up in the first quarter amid improving market sentiment, data from the Bangko Sentral ng Pilipinas (BSP) showed.

Banks’ real estate exposure ratio climbed to 19.07% in the first quarter from the seven-year low of 18.93% at end-December.

Year on year, however, it slipped from 19.41% seen at end-March last year.

Ruben Carlo O. Asuncion, chief economist at Union Bank of the Philippines, said banks’ exposure to the property industry went up on a quarterly basis as sentiment began to recover and real estate projects resumed.

However, lending to other industries may have outpaced those extended to the property sector, which could explain the year-on-year drop in banks’ real estate exposure, he noted.

“The slight year-on-year decline in banks’ real estate exposure reflects faster expansion in non-property lending alongside more measured credit allocation to the sector amid tighter financial conditions last year,” Mr. Asuncion said in a Viber message.

“The quarter-on-quarter uptick likely indicates a modest rebound in lending activity at the start of 2026, supported by improving sentiment and project resumption,” he added.

Sustained lending for ongoing development projects and the slightly higher demand for property-related loans may have also led to the quarterly improvement in banks’ real estate exposure, said Dino M. Palanca, director for marketing and research at real estate firm Savills Philippines.

“While overall market conditions remain selective, developers continue to draw on committed credit facilities for projects already in the pipeline, particularly in the residential, industrial, and logistics sectors,” he told BusinessWorld via Viber.

“The increase, however, remains relatively measured, suggesting that banks continue to maintain prudent underwriting standards amid a still-evolving market environment,” he added.

Meanwhile, Mr. Palanca noted that the annual decline was likely driven by market normalization rather than weaker sentiment in the property sector, with developers becoming “more disciplined” and banks practicing selective lending.

“While softer property market sentiment over parts of 2025 likely contributed to more cautious borrowing and investment decisions. The decline should not necessarily be interpreted as a sign of broad weakness in the property sector,” he said. “Rather, it reflects a market that has been undergoing a period of normalization following several years of adjustment.”

Mr. Palanca said developers are now more disciplined in launching new projects, focusing on absorption rates, project completion, and inventory management.

“Banks, likewise, have remained selective in extending credit, particularly toward projects with strong fundamentals and demonstrated demand,” he said.

The BSP monitors lenders’ exposure to the real estate industry as part of its mandate to maintain financial stability.

In the first quarter, Philippine banks and trust departments granted P3.556 trillion worth of loans and investments to the real estate sector. This was 6.48% higher than the P3.34 trillion it extended a year ago.

Of the total, P3.204 trillion was real estate loans, rising by 7.97% from P2.968 trillion the industry lent a year earlier.

This came as residential real estate loans grew by 8.48% to P1.229 trillion from P1.133 trillion last year, while commercial real estate loans were up by an annual 7.91% to P1.975 trillion from P1.83 trillion a year ago.

Based on central bank data, past due real estate loans amounted to P164.072 billion in the January-to-March period, climbing by 9.73% from P149.518 billion in the previous year.

Broken down, past due residential real estate loans inched up by 0.87% year on year to P108.555 billion, while past due commercial real estate loans jumped by 32.51% to P55.517 billion.

This brought the past due real estate loan ratio to 5.12%, higher than 4.79% at end-December and 5.04% in the first quarter of last year.

Meanwhile, gross nonperforming real estate loans reached P119.819 billion in the first quarter, up by 7.68% from the P111.272 billion recorded as of end-March 2025.

The increase was driven by gross nonperforming residential real estate loans, which rose 4.22% year on year to P75.309 billion, and gross nonperforming commercial real estate loans, which climbed 14.09% to P44.51 billion.

With this, the gross nonperforming real estate loan ratio went up to 3.74% in the first quarter from 3.53% a quarter ago but slightly eased from 3.75% in the prior year.

On the other hand, the sector’s real estate investments amounted to P352.184 billion as of end-March, down by 2.54% year on year from P361.37 billion.

Debt securities fell by 7.94% annually to P235.712 billion, while equity securities nudged 0.1% higher to P116.473 billion.

The annual decline of banks’ real estate exposure signals “strategic caution,” according to Jonathan L. Ravelas, a senior adviser at Reyes Tacandong & Co.

“Until we see clearer signs of sustained demand recovery, stable rates, and improving occupancy, real estate will likely stay range-bound in bank portfolios, not a major growth driver,” he added in a Viber message.

Meanwhile, Mr. Asuncion expects lending and investment to the real estate sector to be sustained in the coming months as banks step up property-related lending.

“Moving forward, we expect real estate exposure to remain elevated but broadly stable, as a gradual pickup in property-related lending is balanced by banks’ efforts to diversify portfolios,” he said. “Importantly, institutions are likely to continue managing exposures prudently to stay within regulatory ceilings.”

For Mr. Palanca, financing demand from the real estate sector in the months ahead will likely be driven by projects in industrial and logistics, data centers, as well as developments in selected residential segments and offices.

Potential interest rate cuts and increased liquidity could also support developers and property buyers, he said.

“However, banks are expected to continue prioritizing asset quality and risk management, which means capital will likely flow toward projects with clear demand drivers, strong sponsorship, and sustainable cash flow prospects,” Mr. Palanca added.