Banks tighten standards for real estate lending

PROPERTY developers found it harder to secure bank financing in the last three months of 2014 as credit standards tightened amid stricter regulations aimed at preventing the formation of a price bubble in the sector.

Results of the latest Bangko Sentral ng Pilipinas (BSP) survey on senior loan officers showed that banks were more selective with their clients in the fourth quarter of last year. This behavior is expected to continue in the coming months.

For the 10th consecutive quarter, respondent banks reported a net tightening of overall credit standards for office builders or commercial real estate loans.

This was attributed by respondent banks to “perceived stricter oversight of banks’ real estate exposure along with banks’ reduced tolerance for risk,” the BSP said in a statement.

In particular, respondent banks reported wider loan margins, reduced credit line sizes, stricter collateral requirements and loan covenants, shorter loan maturity and increased use of interest rate floors for commercial real estate loans.

Despite the tighter credit standards, banks expect demand to remain robust. Banks that anticipate a tightening of their credit standards outnumbered those expecting the opposite.

In terms of demand for this type of loan, although most of the respondent banks anticipate generally steady loan demand, a number of banks expect demand for commercial real estate loans to continue increasing in the following quarter, the BSP said.

In the meantime, for the first time in a year, credit standards for households were steady in the fourth quarter. Officials, however, shrugged this off, noting that results for a single quarter should not be seen as the start of a trend.

“Banks’ responses also showed unchanged standards in terms of loan margins, collateral requirements, loan covenants, and loan maturity along with steady use of interest rate floors,” the BSP said.

For the next quarter, the majority of the respondent banks expect their credit standards for housing loans to remain unchanged. However, more banks expect to tighten their credit standards compared to those expecting the opposite, the BSP said.

Data from the BSP showed that banks’ funding for real estate reached a record high of P1.15 trillion, or 21.29 percent of the sector’s total loan portfolio as of the fourth quarter last year. This was higher than the 21.06 percent as of June last year.

Exposure to real estate, which includes both loans and investments in real estate firms’ debt and equity securities, was up 23.3 percent at the end of September.
Growth in real estate loans outpaced the expansion in the industry’s total loan portfolio of 19 percent at the end of September.