Lending standards for real estate, housing loans unchanged

MANILA, Philippines - Banks finally kept lending standards for commercial real estate and housing loans unchanged after 13 consecutive quarters of tightening, reflecting confidence to take on risk in the asset sector.

According to the results of the Bangko Sentral ng Pilipinas’ (BSP) 4th Quarter 2015 Senior Loan Officers’ Survey, all 20 respondent banks answered that overall credit standards for commercial real estate and housing loans were unchanged in the fourth quarter of last year.

“The unchanged overall credit standards for commercial real estate loans reflected respondent banks’ stable economic outlook and unchanged tolerance for risk as well as unchanged profile of borrowers, among others,” said Ruby Anne Lemence, bank officer at the central bank’s Department of Economic Research.

In terms of specific credit standards for commercial real estate loans, she added banks’ responses showed unchanged provisions in loan contracts, but wider loan margins, stricter collateral requirements, and increased use of interest rate floors.

 For the next quarter, survey showed 95.2 percent of respondent-banks expect to maintain their credit standards for commercial real estate loans.

However, the remaining 4.8 percent expect to “somewhat tighten” requirements for such loans.

  Demand for commercial real estate loans was also unchanged in the fourth quarter of last year, but a number of banks indicated increased demand for the said type of loan on the back of clients’ improved economic outlook and increased customer inventory financing needs, among others.

 Although most of the respondent banks anticipate generally steady loan demand in the first quarter, survey results showed some lenders expect demand for commercial real estate loans to increase further.

 In case of housing loans extended to households, Lemence said 76.5 percent of the respondent banks reported unchanged credit standards but a slight easing was noted using the diffusion index approach.

 “The net easing of credit standards for housing loans was attributed by respondent banks to their increased tolerance for risk and the improvement in the overall profile of borrowers,” the BSP said.

 In June 2014, the BSP introduced stricter rules on banks’ real estate exposure to ensure that lenders have enough capital to absorb any potential losses. The new measure simply reinforces the prudential policy that banks must have sufficient capital to absorb any potential shock on its credit exposures.

 The pre-emptive macroprudential policy measure approved by the Monetary Board required stress tests for banks to determine if their capital will be enough to absorb credit risk that may arise from their exposure to the property sector.

 The BSP explained that universal, commercial, and thrift banks would need to meet a capital adequacy ratio of 10 percent of their qualifying capital following the stress test results.

 Moreover, universal and commercial banks, along with their thrift bank subsidiaries will also need to keep a Common Equity Tier 1 level of at least six percent of their qualifying capital. Stand-alone thrift banks, meanwhile, are required to maintain a Tier 1 ratio of six percent of their qualifying capital.