Banks tighten standards for real estate, housing loans

MANILA, Philippines - Banks continued to tighten lending standards for commercial real estate and housing loans for six straight quarters amid a steady rise in prices, the Bangko Sentral ng Pilipinas (BSP) reported over the weekend.

Dennis Lapid, deputy director at the BSP’s Department of Economic Research, said the central bank’s 2nd Quarter 2017 Senior Loan Officers Survey showed a net tightening of overall credit standards for commercial real estate and housing loans in the second 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 tenors, and increased use of interest rate floors,” Lapid said.

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

 “A number of banks, however, indicated increased demand for the said type of loan on the back of increased accounts receivable financing needs, improvement in customers’ economic outlook, banks’ more attractive financing terms and lower interest rates,” he said. 

Although most of the respondent banks anticipate generally steady loan demand in the third quarter, Lapid said a number of banks expect demand for commercial real estate loans to continue to increase. 

Using the modal approach, the BSP said 95.5 percent of respondent banks indicated unchanged credit standards for commercial real estate loans for the third quarter. 

Likewise, Lapid said a larger proportion of respondent banks reported tighter credit standards for housing loans extended to households in the second quarter. 

“The net tightening of credit standards for housing loans was attributed by respondent banks largely to their reduced tolerance for risk, a decline in borrowers’ profiles and perceived stricter financial system regulations,” he said. 

However, results based on the modal approach indicated 84.2 percent reported unchanged credit standards.

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

Lending by big banks or universal and commercial banks to real estate activities jumped 17.1 percent to P1.1 trillion in end May this year from P936.94 billion in end May last year. 

On the other hand, residential real estate prices went up by 1.1 percent in the first quarter with the Residential Real Estate Price Index (RREPI) rising to 117.2 from 115.9 in the same quarter last year. 

The growth in prices of condominium units was faster at 2.7 percent year-on-year, while those of single detached units edged higher at 0.4 percent. Meanwhile, those of townhouses slowed down to 1.3 percent. 

RREPI measures the average change in prices of various types of housing units comprising of single detached/attached house, duplex, condominium, and townhouse based on data from housing loans granted by commercial, universal, and thrift banks.