Banks see rise in real estate loans this quarter

Philippine banks are expecting an increase in demand for commercial and individual real estate loans in the first quarter of the year as the country exited the pandemic-induced recession last year, according to the Bangko Sentral ng Pilipinas (BSP).

Based on the Q4 2021 Senior Bank Loan Officers’ Survey (SLOS), more banks see a rise in commercial real estate loans from January to March this year after a slight decline in the fourth quarter of last year due to decreased investment in plant or equipment of clients and the deterioration in customers’ economic outlook.

“Respondent banks anticipate the credit demand for commercial real estate loans to rise largely due to the market’s positive economic outlook as well as the increased customer inventory and accounts receivable financing needs.  

Likewise, banks are also anticipating a net rise in housing loan demand in the first quarter of the year due to expected higher housing investment and bank’s more attractive financing terms.

This follows a net increase in housing loan demand in the quarter of last year amid higher household consumption and housing investment.

The Philippine economy bounced back with a gross domestic product (GDP) growth of 5.6 percent last year, slightly above the government’s five to 5.5 percent target, after shrinking by 9.6 percent in the 2020 due to the impact of the COVID-19 pandemic.

The country booked a GDP growth of 12 percent in the second quarter of last year, 6.9 percent in the third quarter, and 7.7 percent in the fourth quarter after contracting by 3.9 percent in the first quarter that stretched the pandemic-induced recession to five quarters.

Latest data from the BSP showed real estate loans extended by big banks went up by eight percent to P1.85 trillion as of end November last year, accounting for 19.8 percent of the P9.35 trillion disbursed during the 11-month period.

Using the diffusion index-based approach, banks has tightened overall lending standards for commercial real estate loans for the 24th consecutive quarter in the fourth quarter of 2021.

During the quarter, respondent banks conveyed a declined tolerance for risk, deterioration in borrowers’ profile, and a less favorable outlook as key elements to the tightening of overall credit standards for commercial real estate loans.

“In terms of specific credit standards, the net tightening of overall lending standards for commercial real estate loans was attributed to wider loan margins, reduced credit line sizes, stricter collateral requirements and loan covenants, increased use of interest rate floors, and shortened loan maturities,” the central bank added.

For the first quarter of 2022, respondent banks expect a net tighter credit standards for commercial real estate loans.

Banks are also expecting further easing of lending standards for housing loans to households in the first quarter, driven by less uncertain economic outlook, and improvement in borrowers’ profile.