Banks tighten anew real estate loan requirements

MANILA, Philippines — Banks continued to tighten lending requirements for commercial real estate and housing loans for nine consecutive quarters amid steady rise in prices, the Bangko Sentral ng Pilipinas (BSP) reported over the weekend.

BSP deputy director Dennis Lapid said results of the 1st Quarter 2018 Senior Loan Officers Survey showed a net tightening of overall credit standards for commercial real estate and housing loans using the diffusion index (DI) approach.

“The tighter overall credit standards for commercial real estate loans reflected respondent banks’ wider loan margins, reduced credit line sizes, stricter collateral requirements and loan covenants, shorter loan maturities, and increased use of interest rate floors,” Lapid said.

Lapid said majority of the respondent banks expect continued net tightening of credits for commercial real estate and housing loans over the next quarter due to rising demand.

“Over the next quarter, while majority of the respondent banks foresee maintaining their credit standards for commercial real estate loans, DI-based results point to expectations of continued net tightening of credit standards for the said type of loan,” he said.

Lapid said a number of banks, however, indicated increased demand for commercial real estate loans on the back of increased investment in plant and equipment, banks’ more attractive financing terms, and low interest rates.

For the next quarter, Lapid said a number of banks expect demand for commercial real estate loans to continue to increase.

“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 continue to increase,” he said.

Likewise, Lapid said DI-based approach on housing loans extended to households pointed to a net tightening of credit standards, reflecting respondent banks’ reduced tolerance for risk.

Over the next quarter, results of the survey show that banks foresee unchanged overall credit standards for housing loans on the back of their unchanged tolerance for risk, steady profile of housing loan borrowers and banks’ stable economic outlook.

Lapid said most banks reported a net increase in demand for housing loans in the first quarter, and sees sustained demand for the next quarter.

The BSP has placed the real estate and project finance exposures of Philippine banks under tight watch as debt watchers and multilateral lending agencies have raised the red flag over the possible overheating in the economy.

The BSP has approved enhancements to the prudential reporting requirements to strengthen oversight of banks’ real estate and project finance exposures.