Uptight banks on the lookout for asset bubbles

BANKS continued to tighten lending standards for real estate amid expectations demand will continue to rise due to the country’s growing economy.

Results of a new survey by the Bangko Sentral ng Pilipinas (BSP) showed a “net tightening” of overall credit standards for commercial real estate loans amid efforts by regulators to cut off glut in the sector.

This was mainly attributed “by respondent banks largely to perceived stricter oversight of banks’ real estate exposure.”

Among respondent banks surveyed in the third quarter, 76.2 percent said they would keep lending standards to commercial real estate unchanged. This was down from the 86.4 percent that gave the same answer in the second quarter.

Close to 19.1 percent of banks surveyed said they would either tighten lending standards “considerably” or “somewhat.” Meanwhile, only 4.8 percent of banks said lending standards would be eased.

“Respondent banks reported stricter collateral requirements and loan covenants along with wider loan margins, reduced credit line sizes, shorter loan maturities, and increased use of interest rate floors for commercial real estate loans,” the BSP said.

“For the next quarter, most of the respondent banks expect to maintain their credit standards for commercial real estate loans,” it added.

Demand for commercial real estate loans was also unchanged in the third quarter 2015 based on the modal approach. A number of banks, however, indicated increased demand for the said type of loan on the back of “clients’ improved economic outlook and increased customer investment in plant or equipment.”

Over the next quarter, 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.

Last year, the exposure of universal, commercial and thrift banks to real estate sector rose to a record high of P1.22 trillion, up 21 percent year-on-year. Banks are exposed to real estate through loans and investments in securities issued by property companies.

Lending to real estate companies reached the equivalent of 18.58 percent of all the industry’s total portfolio, up from 17.82 percent the year before but still under the 20-percent cap set by regulators.