Real estate loan standards remain tight

Banks continued to impose tighter overall credit standards for real estate loans amid less favorable economic conditions and deterioration in borrowers’ profile due to the impact of the COVID-19 pandemic.

Lara Romina Ganapin, acting deputy director of the Department of Economic Research at the Bangko Sentral ng Pilipinas (BSP), said the results of the Third Quarter Senior Bank Loan Officers’ Survey (SLOS) showed a net tightening of the overall credit standards for commercial real estate loans for the 19th consecutive quarters.

“Respondent banks cited a less favorable economic outlook, deterioration in borrowers’ profile and profitability of banks’ portfolio, as well as reduced tolerance for risk as the major reasons for the tightening of overall credit standards for commercial real estate loans,” Ganapin said.

In terms of specific credit standards, Ganapin said the net tightening of overall credit standards for commercial real estate loans reflected reduced credit line sizes, stricter collateral requirements and loan covenants, wider loan margins, shortened loan maturities, and increased use of interest rate floors.

For the fourth quarter, Ganapin said most of the respondent banks anticipate tighter credit standards for commercial real estate loans as they expect a net decrease in demand due to the expected deterioration in customers’ economic outlook.

Likewise, Ganapin said respondents also expect tighter overall credit standards for housing loans due to more uncertain economic prospects, deterioration in borrowers’ profile, and lower risk tolerance of banks.

She added banks also anticipate reduced demand for housing loans this quarter on sustained expectations of lower housing investment and household consumption.

Last August, the Monetary Board raised the real estate loan limit of big banks to 25 percent from 20 percent, releasing P1.2 trillion in additional liquidity for lending to the sector to soften the impact of the pandemic to the economy.

Based on the survey, which covered 48 banks conducted from Sept. 2 to Oct. 13, Ganapin said respondents expect tighter overall credit standards for loans to enterprises and households this quarter due to deterioration in borrowers’ profiles and profitability of banks, as well as lower tolerance for risk.

Banks are expecting an increase in overall demand for business loans associated largely with corporate clients’ higher working capital requirements, a rise in customer inventory financing needs, a decline in clients’ internally generated funds, and lack of sources of other funds.

Ganapin said there was also a decline in overall demand for household loans, including housing, auto, as well as personal and salary loans due to lower household consumption and housing investment.

Despite the aggressive easing measures by the BSP and the reopening of the economy with the shift to general community quarantine in June, credit growth slowed for the fifth straight month to its slowest pace in 14 years at 4.6 percent in August from 6.7 percent in July. This was the slowest credit growth since the 4.4 percent booked in November 2006. —LAWRENCE AGCAOILI