Banks tighten loan standards for real estate, housing

MANILA, Philippines – Banks continued to tighten lending standards for commercial real estate and housing loans in the third quarter amid the sharp rise in prices, the Bangko Sentral ng Pilipinas (BSP) reported over the weekend.

The central bank’s 3rd Quarter 2016 Senior Loan Officers Survey showed a net tightening of overall credit standards for commercial real estate and housing loans in the third quarter 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 maturity, and increased use of interest rate floors,” the BSP said.

Using the modal approach, the BSP said 85.7 percent of respondent banks indicated unchanged credit standards for commercial real estate loans for the third quarter.

Demand for commercial real estate loans was also unchanged but a number of banks indicated increased demand on the back of increased working capital and inventory financing needs of borrowers and clients’ improved economic outlook.

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.

Likewise, a slight tightening of credit standards for housing loans extended to households was noted in the third quarter.

“The net tightening of credit standards for housing loans was attributed by respondent banks largely to perceived stricter financial system regulations and as well as clients’ less favorable economic outlook,” it said.

However, results based on the DI approach indicated that some banks foresee a net easing of credit standards for housing loans in the fourth quarter on expectations of an improvement in the profitability of banks’ portfolio, more aggressive competition from banks and non-bank lenders, and increased tolerance for risk.

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

Housing prices nationwide rose faster as the Residential Real Estate Price Index (RREPI) climbed 11.3 percent to 122.8 in the second quarter from the 110.3 recorded in the same quarter last year due to strong demand especially in areas outside the National Capital Region (NCR).

This was faster than the revised 9.4 percent increase booked in the first quarter when the RREPI stood at 115.9 against the 111 registered in the first quarter last year.

The data showed single-detached housing units booked the highest growth in prices at 18.6 percent followed by townhouses with 14.7 percent and duplex units with 0.6 percent. The prices of condominium units were almost unchanged.

BSP Deputy Governor Diwa Guinigundo said the growth of residential prices in the second quarter is not “bubbly” as there is real demand as residential construction activities has expanded outside Metro Manila with the development of new projects.

“The second quarter 2016 RREPI is not alarming given the solid real gross domestic product growth and improvement in employment data,” he said.

He pointed out real estate developers continued to explore rural-urban fringe areas for developments to meet residential needs while construction activities in the low cost housing segment continued to grow.

“Importantly, the second quarter 2016 uptick in housing prices was caused by actual demand, rather than by mere speculation by property investors and developers,” Guinigundo said.