Banks see strict lending for commercial real estate

Banks see strict credit rules for commercial real estate loans in the fourth quarter of the year, but a loosening for individual borrowers, according to the Bangko Sentral ng Pilipinas (BSP).

The central bank said lenders’ responses in its Third Quarter 2021 Senior Bank Loan Officers’ Survey (SLOS) continued to signal anticipation of net tougher credit requirements for commercial real estate loans (CRELs) for October to December this year after adopting the diffusion index (DI) approach.

On the other hand, banks reported a net increase in demand for CRELs, owing to “customers’ improved economic outlook and lower interest rates.”

Meanwhile, the DI-based approach projects a net loosening of housing loan credit standards, owing to anticipated improvements in borrowers’ profiles and improved economic prospects.

Survey responses also “stated expectations of a net increase in housing loan demand in Q4 (fourth quarter) 2021 in anticipation of banks’ more attractive financing terms, lower interest rates, and consumers’ increasing housing investments.”

The survey’s findings showed that banks tightened their lending terms for CRELs for the 23rd consecutive quarter from July to September 2021.

“Respondent banks mentioned a decreased tolerance for risk, deterioration in borrowers’ profile, and a more uncertain economic outlook as significant factors to the tightening of overall credit standards for CRELs in Q3 (third quarter) 2021,” the BSP said.

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Wider loan margins, smaller credit line amounts, stricter collateral requirements and loan covenants, increased usage of interest rate ceilings, and shorter loan maturities were all cited as reasons for the net tightening of overall lending standards for CRELs.

The Bangko Sentral added that DI-based data showed a net tightening in the third quarter of 2021 for household home loans.

The central bank said it has been conducting the SLOS since 2009 in order to get a better understanding of banks’ lending behavior, which is a key indicator of the country’s credit activity.

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