New lockdown measures announced in late-March 2021 for the National Capital Region and surrounding provinces are likely to dampen business and consumer confidence, according to a major credit rating agency.
Fitch Ratings said this could sap property demand and ultimately weigh on banking sector asset quality.
It said lumpy asset impairments could arise, if renewed economic weakness begins to result in the default of larger property developers.
Fitch said that overall, the local banking sector continues to face heightened impairment risks from the property sector because of the sluggish economy, despite a modest recovery in the real estate price index in the fourth quarter of 2020.
Average national property prices posted 2.4 percent growth in the fourth quarter, but condominium prices in the NCR where most of the banks' real estate exposures lie remain 20 percent below the peak in the second quarter of 2020.
The dip could already have pushed some of the banks' recently originated high loan-to-value mortgages under water, raising the likelihood of default and reducing recovery rates.
"We expect the property market to remain soft in the near term despite the low-interest-rate environment," Fitch Ratings said.
Rising inflation is also posing another challenge for the Bangko Sentral's monetary policy stance, especially if demand-pull inflation takes hold when the economy reopens, the debt watcher said.
"Higher interest rates could further undercut housing demand, but we believe any tightening is likely to be measured as the central bank looks inclined to maintain accommodative policies to help support the economy," Fitch said.
