May 052013

MANILA, Philippines – Property loans granted for residential purposes rose the fastest among other household credit last year, but remained of the best quality, boosting the Bangko Sentral ng Pilipinas’ (BSP) belief that the country is still safe from asset bubbles.

In its Status of Philippine Financial System Report released last Friday, the central bank said residential real estate loans increased 19.77 percent to P264.2 billion from P220.836 billion a year ago.

This accounted for the biggest share in consumer loans, at 42 percent of the total P629.3 billion granted during the same period. Aggregate consumer loans went up 15.28 percent year-on-year.

Other consumer loans were auto loans, credit card receivables and those used for other purposes such as purchase of appliances. All recorded gains from their 2011 levels.

Despite the marked increase, residential property loans enjoyed the lowest bad loan ratio or the proportion of unpaid loans over the loan portfolio. Bad loans are those that remained unpaid 30 days after the due date.

Unpaid credit accounted for 4.1 percent of total residential real estate loans, down from 4.3 percent in 2011.

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Last week, BSP Governor Amando Tetangco Jr. said there are “no emerging signs” of asset bubble formation in the Philippines despite the affordability of bank credit and surge of inflows from abroad.

Asset bubbles are characterized by an upshot in asset prices, such as those in the real estate sector, that they no longer reflect real market rates due to perceived demand. Such is seen as detrimental to the economy.

 “What we are observing is that the financing terms are getting more and more attractive. That is why we would like to closely monitor this,” Tetangco said.

“Another trend that we are seeing, is that even the large developers are now moving down the market. They used to be concentrated in the high cost sector, but now they are correcting depending on the demand.”

Other consumer loans also rose last year on the back of the BSP’s decision to cut policy rates by 100 basis points to historic lows of 3.5 percent and 5.5 percent for overnight borrowing and lending, respectively.

Policy rates serve as benchmark for bank loan rates. Thus, the lower the policy rates, the lower banks should charge consumers borrowing money.

Following residential property credit are auto loans which hit P159.9 billion, up 14.87 percent from P139.2 billion a year ago. This covered more than a quarter of the total loan portfolio.

Credit card receivables, meanwhile, went up 12.48 percent to P148.7 billion last year, while other credit used for household needs picked up 4.75 percent.

The former accounted for 11.1 percent, while the latter covered 13 percent.

Bad loan ratios of auto loans and credit card debts worsened, while that of other consumer loans improved.

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