Banks tighten lending to real estate, BSP says

Interest rates starting to rise as tolerance to risk weakens

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09:30 PM August 11th, 2013

By: Paolo G. Montecillo, August 11th, 2013 09:30 PM

Banks continue to show signs of increased restrictions to lending to the real estate sector amid the tighter regulatory scrutiny on the industry’s exposure to the booming housing and office space industry.

The Bangko Sentral ng Pilipinas (BSP) in a report last week said banks reporting tighter overall credit standards for commercial real estate loans now outnumber those indicating the opposite.

“The net tightening of overall credit standards for commercial real estate loans was attributed by banks to stricter oversight of banks’ real estate exposure, along with banks’ reduced tolerance for risk,” the BSP said.

The BSP said banks were starting to report higher interest rates and lower credit line sizes for commercial real estate loans.

Despite these factors, the BSP’s second quarter Senior Loan Officers’ Survey showed 82.4 percent of banks said overall credit standards remained unchanged.

The BSP said banks showed unchanged collateral requirements, loan covenants, loan maturities, and interest rate floors for the survey period.

Banks said most of their clients were unfazed by the marginal tightening of credit standards.

Many borrowers now have improved economic outlooks and increased inventory and financing needs.

As a result, demand for commercial real estate loans remained strong, supporting the growth of companies across the country, particularly in the business process outsourcing sector. Nearly all bank respondents also expect demand for commercial real estate loans to continue to increase in the third quarter of the year.

The possible tightening of credit standards for real estate borrowers comes amid an expected relaxation of requirements for other types of borrowers.

The BSP earlier reported that more banks are likely to relax their credit standards for consumers and businesses amid competition in the industry and the access to cheap cash.

Earlier this year, the BSP said it was closely watching how banks lent to the housing sector to look out for possible signs that an asset price “bubble” was forming given the property industry’s robust growth in the past few years.

The BSP requires that all banks limit the amount of loans to extend to real estate to 20 percent of their respective loan portfolios.

Despite the tighter watch, BSP Governor Amando M. Tetangco Jr. has repeatedly said that the formation of a “bubble,” which if popped could lead to a sharp deterioration in banks’ asset qualities resulting in tighter access for everyone else, was still a remote possibility.

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