July 13, 2014

BSP survey: banks tightening on consumer loans in 2Q14

Based on a central bank (BSP) survey as quoted by the media, banks have tightened their credit standards for loans to households in 2Q14. In particular, banks set higher credit standards and collateral requirements for consumer loans, especially for home loans. This trend has been sustained for two quarters now. However, banks’ credit standards and requirement for corporate loans remain unchanged since the start of the year. Notwithstanding the stricter standards, loan growth has remained at double-digit levels especially with loans for production activity picking up.

Our take: While this comes as a negative news flow for the property sector as the stricter home loan requirement can take off some steam from property sales momentum, this should be positive for both the property and banking sectors in the long run. Combined with the more stringent monitoring standards by central bank on the real estate loan exposure of banks, raising the credit standard for home loans should prevent any asset bubble and subprime crisis from forming and this should bode well for the long-term growth of banks and property companies.

In the meantime, this can take toll on residential property sales of developers with a higher proportion of buyers who rely on bank financing. These include Vista Land and Lifescapes -VLL (70% of buyers availed of bank financing in 1Q13), Filinvest Land - FLI (52%) and Robinsons Land Corp –RLC (60%). Extending in-house financing to their buyers may weigh on their cash flows although the impact should not be as significant for RLC and FLI which derive recurring income from their mall and office leasing operations.– WealthSec