Banks tighten credit screening

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Banks tightened for the tenth consecutive quarter their credit standards for lending to commercial real estate but rules for individual housing were unchanged a central bank survey shows.

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The Senior Bank Loan Officers Survey (SLOS) recently released by the Bangko Sentral ng Pilipinas (BSP) showed a continued net tightening of banks’ overall credit standards for commercial real estate loans in the fourth quarter of 2014.

The survey results were measured based on the diffusion index (DI) approach. A positive DI for credit standards indicates that the proportion of banks that have tightened their credit standards is greater than those that eased (“net tightening”), whereas a negative DI indicates that more banks have eased their credit standards than those that tightened (“net easing”).

The tightening was largely due to stricter government oversight of banks’ real estate exposure along with banks’ reduced tolerance for risk.

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

For the quarter ahead, SLOS revealed that most of the respondent banks expect to maintain their credit standards for commercial real estate loans.

“However, banks that anticipate a tightening of their credit standards outnumbered those expecting the opposite,” it said.

Meanwhile, credit standards for housing loans extended to households were unchanged in the last quarter of 2014 as the number of banks indicating tighter credit standards equaled those that indicated easing credit standards.

The survey said unchanged credit standards for housing loans was attributed to the banks’ unchanged tolerance for risk.

“Banks’ responses also showed unchanged standards in terms of loan margins, collateral requirements, loan covenants, and loan maturities along with steady use of interest rate floors,” it added.

For the next quarter, most of the respondent banks expect their credit standards for housing loans to remain unchanged.

But more banks expect to tighten their credit standards compared to those expecting the opposite.

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