Fitch: PH banks remain at risk

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Exposure to weak real estate market could reduce bank reserves Debt watcher Fitch Ratings has warned the Philippine banking sector of the risk of further depreciation in the real estate sector.

“Prolonged economic weakness could expose banks to flat-rate write-downs and lower their loss absorption buffers – given their high concentration of large borrowers and the real estate sector’s strong correlation with the economy in general,” a- he stressed in a report published Wednesday.

The credit rating agency said it expects the housing market to remain weak in the near term, given the slow economic recovery and low housing affordability in the country.

This is despite the fact that house prices rose 2.4% in the fourth quarter of 2020 and offset some of the recent losses, although condominium prices in the National Capital Region – where banks are most exposed to real estate – remained 20% below the peak in the second quarter of last year.

“The new foreclosure measures announced at the end of March 2021 for the capital region are likely to weaken business and consumer confidence, which could undermine real estate demand and ultimately weigh on the quality of the banking sector’s assets,” he said. also noted Fitch in a separate statement.

The recent increase in daily 2019 coronavirus disease infection since the middle of this month prompted the national government to place the National Capital Region and adjacent provinces of Bulacan, Cavite, Laguna and Rizal under enhanced community quarantine ( ECQ) until April 4.

“Global asset write-downs could arise if further economic weakness starts to cause major real estate developers to default that we do not currently expect in our baseline scenario,” Fitch also pointed out.

In the report, the credit assessor said home loan balances of most of its major rated banks in the country “barely increased in 2020, reflecting weak demand for commercial property and heightened aversion. at the risk of banks “.

This despite the regulatory relaxation of mortgage limits to 25 percent from 20 percent, he said.

“Fitch remains alert for any sign of an undue increase in banks’ risk appetite as the economy recovers, as many banks had substantial residential mortgages with loan-to-value ratios that exceeded 80% before the crisis, “continued the credit watchdog. .

He added that default risks for some loans may have already materialized, with the ratio of non-performing residential mortgages hitting 8.4% in September 2020, up from 3.1% at the end of 2019.

Fitch added that rising inflation also posed another challenge for the monetary policy stance of the Bangko Sentral ng Pilipinas (BSP), particularly if demand-driven inflation sets in when the market reopens. ‘economy.

February’s 4.7% inflation rate, which broke the upper bound of the central bank’s 2-4% target for the second month, suggests limited room for maneuver for the BSP to maintain a position accommodating, he said.

“Higher interest rates could further undermine housing demand and start the real estate recovery, although any tightening needs to be measured because the central bank is likely to maintain an expansionary monetary policy to support the economic recovery,” noted the debt observer.

Finally, he said that the weakness of the real estate market will continue to weigh on the quality of banks’ assets, which is already on a negative outlook.

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