Banks Tighten Loan Standards for Real Estate, Housing in Q2

MANILA, Philippines - Banks continued to tighten lending standards for commercial real estate and housing loans in the second quarter of amid the reduced tolerance for risk and perception of stricter financial system regulations.

Dennis Lapid, deputy director at the BSP’s Department of Economic Research, said the central bank’s second quarter Senior Loan Officers Survey showed a net tightening of overall credit standards for commercial real estate and housing loans.

“The diffusion index (DI) approach, however, continued to indicate a net tightening of overall credit standards for the second consecutive quarter,” he said.

In terms of specific credit standards, Lapid said respondent banks showed wider loan margins, reduced credit line sizes, stricter loan covenants, and increased use of interest rate floors.

In the diffusion index approach, a positive index for credit standards indicates that the proportion of banks that have tightened their credit standards is greater compared to those that eased.

Lapid said the demand for commercial real estate loans was also unchanged in the second quarter based on the modal approach.

However, he revealed a number of banks indicated increased demand for the said type of loan on the back of increased working capital and inventory financing needs of borrowers, clients’ improved economic outlook, and more attractive financing terms offered by banks.

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 increase further.