Banks tighten real estate lending in Q2

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Stricter standards set for the 12th consecutive quarter

IN the three months to June banks raised their credit standards for commercial lending to real estate developers for the 12th consecutive quarter, while they also tightened the rules on individual borrowing for housing, the latest central bank survey showed.

Results of the Senior Bank Loan Officers Survey (SLOS) just released by the Bangko Sentral ng Pilipinas (BSP) indicated a net tightening in the diffusion index (DI) for the second quarter of 2015.

The DI approach in commercial real estate loans was recorded at 13.6 percent during the quarter.


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 second-quarter tightening stemmed from stricter government oversight of banks’ real estate exposure, along with the lenders’ reduced tolerance for risk, according to the survey.

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

For the third ahead, the loan officers’ survey revealed that although most of the respondent banks anticipate generally steady loan demand, a number of them also expect demand for commercial real estate loans to continue increasing in the following quarter.

Meanwhile, credit rules for housing loans extended to households also showed a net tightening in the second quarter of 2015. For that period, the DI approach for housing loans stood at 5.9 percent.

“The tighter credit standards for housing loans were attributed to respondent banks’ perceived stricter financial system regulations, along with banks’ reduced tolerance for risk and deterioration in the profile of borrowers,” it said.

For the third quarter, however, respondent banks expect the credit standards for housing loans to remain unchanged.

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