Banks tighten standards on real estate loans

BANKS have tightened credit standards on loans for real estate developers and housing loans for individuals, the Bangko Sentral ng Pilipinas (BSP) reported.

Results of the central bank’s Fourth Quarter 2017 Senior Bank Loan Officers’ Survey showed that overall credit standards for real estate loans using the diffusion index (DI) approach tightened.

This tightening is called a positive DI, indicating that more banks tightened those standards than those that didn’t. Its opposite, negitive DI, indicates that more lenders eased than those that didn’t.

The tightened standards reflected the banks’ wider loan margins, reduced credit line sizes, stricter collateral requirements and loan covenants, shorter loan maturities, and increased use of interest rate floors.

Demand for these loans was said to be unchanged during the quarter, but a number of banks indicated increased demand for them on the back of increased investment in plant and equipment, improvement in borrower firms’ economic outlook, banks’ more attractive financing terms and lower interest rates.

“Although most of the banks anticipate generally steady loan demand, a number of banks expect demand for commercial real estate loans to continue to increase” over the next quarter, BSP said.

Credit rules for housing loans extended to individual borrowers, meanwhile, was unchanged.

“The unchanged credit standards for housing loans was attributed by banks largely to the unchanged profile of household borrowers, their stable economic outlook [and] unchanged tolerance for risk for” such loans, BSP said.

Banks foresee unchanged overall credit standards for housing loans over the next quarter on the back of their unchanged tolerance for risk, stable economic outlook, and steady profile of housing loan borrowers.

Survey results also showed increased demand for housing loans, as well as expectations of sustained increase in demand for them in the next quarter.