Banks tighten credit for real estate firms

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Banks have tightened credit standards with regard to loans extended to real estate developers but eased their rules with regard to housing loans for individuals, the Bangko Sentral ng Pilipinas (BSP) reported.

The central bank said, using the diffusion index (DI) approach, most of the 35 respondent banks in a recent survey indicated a net tightening of overall credit standards for commercial real estate loans during the first quarter of 2016.

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

The tighter overall credit standards for commercial real estate loans reflected respondent banks’ reduced tolerance for risk, deterioration in the profile of borrowers, and perception
of stricter financial system regulations.


“In terms of specific credit standards for commercial real estate loans, banks’ responses showed wider loan margins, reduced credit line sizes, stricter collateral requirements, and increased use of interest rate floors,” the central bank said.

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 increase further.

Credit rules for housing loans extended to borrowers, meanwhile, showed a net easing in the first quarter.

“The net easing of credit standards for housing loans was attributed by respondent banks largely to improvement in borrower’s profile and higher risk tolerance of banks for that type of loan,” the central bank said.

Over the next quarter, although most respondent banks foresee maintaining their credit standards for housing loans, a number of banks expect credit standards to tighten slightly on expectations of lower tolerance for risk.

“At the same time, results continued to show increased demand for housing loans in first quarter 2016, as well as expectations of a continued increase in demand for housing loans in the next quarter,” the BSP said.

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