Banks’ property exposure down to 7-year low

Philippine banks reduced their exposure to the property sector to the lowest level in more than seven years, as higher borrowing costs and economic uncertainty weighed on demand for real estate.

Real estate loans accounted for 18.72 percent of banks’ total lending portfolio as of June, the latest data from the Bangko Sentral ng Pilipinas (BSP) showed. That was the lowest share since December 2018, when property loans made up 18.65 percent of the industry’s loan book.

In peso terms, banks and their trust units lent P3.2 trillion to the property sector, nearly 7 percent more than a year earlier.

Residential loans rose 3 percent to P1.2 trillion, while commercial real estate loans grew 5 percent to nearly P2 trillion.

The latest figure remained well below the BSP’s 25-percent limit on real estate exposure. The central bank raised the ceiling from 20 percent in 2020 to give financial institutions more room to support economic activity during the pandemic.

At the same time, regulators have imposed safeguards, requiring banks to demonstrate that they could maintain adequate capital even if a quarter of their property loans turned sour.

The decline in property lending as a share of total loans comes as the sector contends with the economic fallout from the prolonged conflict in the Middle East. Higher oil prices have squeezed household budgets, while developers have focused on strengthening balance sheets and supporting share prices rather than taking on new debt to finance projects.

The war has also prompted the central bank to tighten monetary policy. Since April, the BSP has raised its benchmark interest rate by half a percentage point to 4.75 percent, increasing the cost of borrowing for households and businesses.

Signs of stress have emerged in some parts of the property loan book. Nonperforming residential mortgages accounted for 6.2 percent of banks’ home loans as of June, the highest since September 2025, when the ratio was 6.39 percent.

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The share of nonperforming commercial real estate loans, meanwhile, eased to 2.07 percent, the lowest since the 1.95 percent ratio in December 2025.

Cid Terosa, an associate professor at the University of Asia and the Pacific, said elevated borrowing costs and uncertainty over the economy had prompted banks to become more cautious in extending credit to the property sector.

“Economic uncertainties forced banks to set up higher credit standards and created strong disincentives to withhold purchase, weakening demand. Also, property prices went up, tightening demand for condominium units,” Terosa said.

“Overall, it was the combination of higher prices, higher interest rates, economic pessimism and consumer aversion to risk that negatively affected real estate loans,” he added.