Banks see pick-up in real estate loans in Q4

MANILA, Philippines — Senior loan officers of Philippine banks see higher demand for real estate loans in the current quarter as borrowers take advantage of the low interest rate regime and the continued recovery from the pandemic-induced recession, according to the Bangko Sentral ng Pilipinas (BSP).

Lara Romina Ganapin, Bank Officer VI at the Monetary Policy Research Group of the BSP, said the diffusion-index approach of the third quarter 2021 Senior Loan Officers’ Survey (SLOS) showed an overall net increase demand for commercial real estate loans for the fourth quarter.

“Respondent banks associated the expected net increase in commercial real estate loans mainly to customers’ improved economic outlook and lower interest rates,” Ganapin said.

In the third quarter, she said there was a marginal net increase in demand for commercial real estate loans, given the lower interest rates and a decline in customers’ internally generated funds.

She said senior loan officers are also expected to further tighten the overall credit standards for commercial real estate loans in the fourth quarter.

In the third quarter, Philippine banks tightened the overall credit standards for commercial real estate loans for the 23rd consecutive quarter amid decreased tolerance for risk, deterioration in borrowers’ profile, and a more uncertain economic outlook due to the resurgence of COVID infections with the emergence of the highly transmissible Delta variant.

Regarding specific credit standards, the net tightening of overall lending standards was attributed to wider loan margins, reduced credit line sizes, stricter collateral requirements and loan covenants, increased use of interest rate floors and shortened loan maturities.

For housing loans extended to households, Ganapin said banks are expecting a net increase in demand in the fourth quarter in anticipation of more attractive financing terms, lower interest rates and consumers’ increasing housing investments.

Ganapin said banks are expected to ease lending standards for housing loans from October to December, driven by the expected improvements in borrowers’ profiles and more favorable economic prospects.

In the third quarter, there was a net tightening in the lending standards for housing loans.

Latest data from the central bank showed loans released to the real estate sector by big banks increased by 7.2 percent to P1.82 trillion and accounted for 19.7 percent of the total lending portfolio of universal and commercial banks.

The BSP has been conducting the SLOS since 2009 to gain a better understanding of banks’ lending behavior, which is an important indicator of the strength of credit activity in the country. The survey also helps the BSP assess the robustness of credit demand, prevailing conditions in asset markets, and the overall strength of bank lending as a transmission channel of monetary policy.

The latest survey was conducted from Sept. 1 to Oct. 4 and covered 64 banks.