Banks further tighten real estate loan standards

MANILA, Philippines - Banks further tightened their lending standards for credit extended to the real estate sector in the third quarter, a Bangko Sentral ng Pilipinas survey showed.

The central bank, in its latest Senior Loan Officers Survey, observed a “net tightening” for standards of commercial real estate borrowings for the ninth consecutive quarter.

“The net tightening of overall credit standards for commercial real estate loans was attributed by respondent banks to perceived stricter oversight of banks’ real estate exposure along with banks’ reduced tolerance for risk, among others,” the BSP said.

“In particular, respondent banks reported wider loan margins, reduced credit line sizes, and stricter loan covenants for commercial real estate loans,” the central bank added.

Latest central bank data showed loans extended by banks to the property sector went up 21 percent to P924.32 billion as of the end of June from the P762.49 billion recorded in the same period last year.

Borrowings made by land developers, construction companies and other corporate entities reached to P583.21 billion in end-June, while credit made for residential properties amounted to P341.11 billion.

Most of the respondent banks expect the keep their credit standards for commercial real estate loans in the fourth quarter, the BSP said.

Meanwhile, the survey also showed the demand for real estate loans remained the same in the third quarter with 65 percent of the respondent banks saying standards “remained basically unchanged,” the BSP said.

For the remaining 35 percent which observed an increase in the demand, the BSP said this was due to improved clients’ economic outlook, lower interest rates, and increased working capital financing needs of clients.

The special questions on commercial real estate loans have been included in the quarterly Senior Loan Officers Survey of the BSP. The quarterly survey has been conducted by the BSP since the second quarter of 2009 to assess credit standards, demand conditions for loans, and potential risks in asset markets.