Banks put squeeze on fresh credit for property firms

Property companies may find it increasingly difficult to access bank financing as lenders hold back on extending fresh credit lines—despite robust demand—because of the regulator’s decision to minimize excessive risk-taking.

A new survey by the Bangko Sentral ng Pilipinas (BSP) showed that banks tightened credit standards for commercial real estate firms for the eighth consecutive quarter. Banks likewise said conditions were bound to get more constricted.

This comes amid the release of new rules, that will take effect next week, under which banks are required to set aside more cash buffers to absorb losses for at least a quarter of their real estate exposures.

Banks attributed their skittishness to the regulator’s “stricter oversight of banks’ real estate exposure along with banks’ reduced tolerance for risk,” according to a special section on the property sector in the BSP’s quarterly senior loan officers’ survey.

The BSP survey, released last Friday, covered the country’s major banks, which accounted for about 90 percent of the local financial system.

“A net tightening of overall credit standards was noted for commercial real estate loans for the eighth consecutive quarter,” the BSP said.

Among others, banks reported stricter collateral requirements and loan covenants, increased use of interest rate floors, reduced credit line sizes, shorter loan maturities and lower loan-to-value ratios for real estate loans.

Demand is expected to remain robust on the back of increased working capital financing needs of clients, said banks surveyed by the BSP.

In a report last week, Moody’s Investor Service noted the glut for loans from real estate firms in the last five years, which local banks had been happy to oblige.

From 2009 to 2013, banks’ real estate loans rose by 22 percent, outpacing the overall credit expansion. Moody’s dispelled fears of an impending property bubble, citing data from property consultant Colliers International, which said property prices rose by 8 percent annually over the five-year period, moving in tandem with the growth of the domestic economy.