Banks still tightening real estate lending


Banks continued to tighten their credit standards with regard to loans extended to real estate developers, the Bangko Sentral ng Pilipinas (BSP) reported, in line with moves to increase regulatory oversight.

The tightening seen in the latest Senior Bank Loan Officers Survey (SLOS), the central bank said, has extended to a 13th consecutive quarter, and banks have also tightened rules on housing loans to individuals.

While most of the 34 respondent banks indicated unchanged overall credit standards for the third quarter, the BSP said a “net tightening” was recorded using the diffusion index (DI) approach.

A positive DI indicates that the proportion of banks that tightened their credit standards is greater than those that eased (“net tightening”), while a negative DI indicates more banks eased their credit standards than those that tightened (“net easing”).

The third-quarter tightening stemmed from stricter government oversight of banks’ real estate exposure, according to the survey.

“In particular, respondent banks reported stricter collateral requirements and loan covenants, along with wider loan margins, reduced credit line sizes, shorter loan maturities, and increased use of interest rate floors for commercial real estate loans,” the BSP said.

The tightening could extend to the following quarter, the survey indicated. While the BSP said that most of the respondent banks expect to maintain their credit standards for commercial real estate loans, “banks that anticipate a tightening of their credit standards outnumbered those expecting the opposite.”

The BSP has tightened its watch over banks’ exposure to the property sector, noting lessons learned from the 2008 financial crisis, among others.

Last year, it mandated stress tests for banks to determine whether they could withstand pressures arising from the property market.

Demand for commercial real estate loans was said to be unchanged during the third quarter, but a number of banks indicated increased demand “on the back of clients’ improved economic outlook and increased customer investment in plant or equipment.”

“Over the next quarter, although most of the respondent banks anticipate generally steady loan demand, a number of banks expect demand for commercial real estate loans to continue increasing in the following quarter,” the BSP said.

Meanwhile, credit rules for housing loans extended to borrowers also showed a net tightening in the third quarter of 2015.

“The net tighter credit standards for housing loans was attributed by respondent banks to deterioration in the profile of borrowers,” the BSP said.

Moving forward, although most respondent banks foresee maintaining credit standards for housing loans, several indicated a slight net easing of credit standards for this type of loan amid expectations of higher tolerance for risk.

Demand for housing loans increased during the third quarter and the outlook is that this would continue rising for the rest of the year.


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