Banks tighten rules on real estate loans

MANILA, Philippines - Banks tightened anew their lending standards for real estate loans in the final quarter of 2014, results of a Bangko Sentral ng Pilipinas survey showed.

“A net tightening of overall credit standards was noted for commercial real estate loans for the tenth consecutive quarter in fourth quarter of 2014,” the BSP said in its latest Senior Loans Officers Survey.

“This 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.

Banks reported wider loan margins, reduced credit line sizes, stricter collateral requirements and loan agreements, shorter loan maturities, and also an increased use of interest rate floors when dealing with commercial real estate loans.

Despite the tighter standards, the BSP said most of the banks reported a steady demand for loans, with some even noting an increase in demand.

“A number of banks… indicated increased demand for the said type of loan on the back of increased inventory and working capital financing and fixed-capital investment needs of clients,” the BSP said.

For this quarter, the BSP said banks are seen maintaining their standards for real estate loans.

“In terms of demand for this type of loan, although most of the respondent banks anticipate generally steady loan demand, a number of banks expect demand for commercial real estate loans to continue increasing in the following quarter,” the BSP said.

Latest central bank data showed banks’ real estate loans went up 24 percent to P977.085 billion as of September last year from P787.967 billion in the same period in 2013.

Commercial real estate loans made up the bulk of these at P592.966 billion, up 24 percent from P479.688 billion, while the remaining were credit made for residential properties at P384.119 billion.

The same survey showed credit standards for housing loans extended to households or individuals were unchanged during the fourth quarter.

“The unchanged credit standards for housing loans was attributed to the banks’ unchanged tolerance for risk,” the BSP said.

“Banks’ responses also showed unchanged standards in terms of loan margins, collateral requirements, loan covenants, and loan maturities along with steady use of interest rate floors,” the central bank said.