MANILA, Philippines - Local banks implemented stricter credit standards on commercial real estate loans in the fourth quarter last year, according to a Bangko Sentral ng Pilipinas survey.
“The net tightening of overall credit standards for commercial real estate loans was attributed by respondent banks to stricter oversight of banks’ real estate exposure along with banks’ reduced tolerance for risk,†the central bank said.
“In particular, respondent banks reported wider loan margins, reduced credit line sizes, stricter collateral requirements and loan covenants, increased use of interest rate floors, and lower loan-to-value ratios for commercial real estate loans,†the BSP continued.
The survey also indicated demand for commercial real estate loans was unchanged during the quarter.
“A number of banks, however, indicated increased demand for the said type of loan on the back of more attractive financing terms of banks and lower interest rates,†the BSP said.
For this quarter, the central bank said banks expect to maintain their lending standards for commercial real estate loans. But the number of banks seeing stricter credit standards outnumber those expecting an easing, the BSP said.
“In terms of demand for this type of loan, although most of the respondent banks anticipate generally steady loan demand, a number of banks are of the view that demand for commercial real estate loans will continue to increase in the next quarter,†the central bank said.
Banks were surveyed on commercial real estate loans as part of the BSP’s quarterly Senior Bank Loan Officers’ Survey to assess credit standards, demand conditions for loans, and potential risks in the asset markets.
Latest data from the BSP showed local banks’ exposure to the property sector grew by seven percent to P900.1 billion in end-June last year from the first quarter. The level, however, is deemed manageable by the central bank.
The BSP last year implemented stricter regulations in monitoring banks’ exposure to the real estate industry to ensure no asset bubbles arise given the robust growth of the country’s property market.
The new reporting system now covers loans to developers of socialized and low-cost housing, and to individuals, and credit supported by non-risk collaterals or Home Guarantee Corp. guarantee.
Banks were also required to report investments in debt and equity securities that finance real estate activities.