Banks tighten real estate lending

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Banks have tightened credit standards on loans extended to real estate developers and housing loans for individuals, the Bangko Sentral ng Pilipinas (BSP) reported.

Results of the Second Quarter 2016 Senior Bank Loan Officers’ Survey (SLOS) showed a net tightening of overall credit standards for real estate loans during the quarter 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 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 and perception of stricter financial system regulations.


In terms of specific credit standards, respondent banks showed wider loan margins, reduced credit line sizes, stricter loan covenants, and increased use of interest rate floors.

Demand for commercial real estate loans was said to be unchanged during the second quarter, but a number of banks indicated increased demand for commercial loans on the back of “increased working capital and inventory financing needs of borrowers, clients’ improved economic outlook, and more attractive financing terms offered by banks.”

“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,” the central bank said.

Credit rules for housing loans extended to individual borrowers, meanwhile, showed a slight tightening in the second quarter of 2016.

“The net tightening of credit standards for housing loans was largely attributed by respondent banks to perceived stricter financial system regulations and reduced risk tolerance for said type of loans,” the central bank said.

Over the next quarter, results showed expectations of broadly unchanged overall credit standards for housing loans on expectations of unchanged tolerance for risk and profile of borrowers.

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

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