Philippine banks likely to keep property exposure muted for rest of year, analysts say
Analysts expect Philippine banks to maintain subdued real estate exposure for the remainder of 2026 as tighter economic conditions dampen developer sentiment and property demand. BSP data shows the real estate exposure ratio fell to 18.72% at end-June, the lowest in nearly seven years, though total
Philippine banks are expected to keep their exposure to the real estate sector muted for the rest of the year as tighter economic conditions weigh on developer sentiment and property demand, analysts said. University of Asia and the Pacific (UA&P) Economist Marco Antonio C. Agonia told BusinessWorld that banks' real estate exposure will likely hover around current levels due to ongoing challenges for the property market and stronger credit appetite in other sectors.
Bangko Sentral ng Pilipinas (BSP) data showed banks and trust entities' property exposure ratio fell to 18.72% as of end-June, the lowest since the 18.65% recorded at end-December 2018. This compares with 19.07% at end-March and 19.61% a year earlier. Despite the declining ratio, total real estate loans and investments reached P3.583 trillion, up 5.64% year on year. Real estate loans alone rose 6.89% to P3.239 trillion, while real estate investments slipped 4.88% to P343.75 billion.
Reyes Tacandong & Co. Senior Adviser Jonathan L. Ravelas said the decline reflects banks prioritising quality over quantity in property lending. “The current decline in banks' real estate exposure is not a sign of stress but a reflection of prudence,” he said. Dino M. Palanca, director for marketing and research at Savills Philippines, noted that the lower ratio does not mean banks have stopped lending. “Rather, it points to a more measured approach to allocating balance sheet capacity to the sector,” he said.
Analysts cited headwinds including the BSP's tightening cycle, elevated construction costs, weak mid-market condo demand, and cautious developer sentiment. The Monetary Board raised the key policy rate by 25 basis points at its August review to an over one-year high of 5%, bringing total hikes to 75 bps since April. Mr Agonia said the tightening will dampen real estate demand and strain developer payment terms. Mr Palanca added that banks will remain selective, funding projects with strong fundamentals, proven demand, and visible cash flows.
Tailwinds include intact demand for horizontal family homes, competitive office space prices relative to East Asian countries, overseas Filipino worker-driven property demand, and improving macroeconomic conditions, Mr Agonia said. Infrastructure improvements could also boost bank confidence, Mr Palanca added. However, a persistent downtrend in banks' exposure could hurt the property industry's growth. Mr Agonia said limited credit exposure may dampen the real estate industry, as developer appetite and demand conditions remain muted until economic conditions improve.
Mr Palanca warned that developers heavily reliant on bank financing will likely hold back from new projects. “If banks keep their real estate exposure relatively muted, we could see slower growth in new property projects,” he said. Mr Ravelas said the property sector must now demonstrate sustainable demand and attractive risk-adjusted returns. “Banks are not pulling away from real estate; they're simply becoming more selective. That's ultimately good for financial stability and for the long-term health of the property market,” he said.
