July 27, 2015

Banks keep tight real estate lending standards in 2Q15

Quoting a central bank survey, various news agencies today reported that banks have further tightened their lending standards for commercial real estate loans in 2Q15. The central bank said that the net tightening of overall credit standards for commercial real estate loans was due to the perceived stricter oversight of banks’ real estate exposure and the banks reduced tolerance for risk.

The respondent banks have reportedly implemented stricter collateral requirements and loan covenants along with wider loan margins, shorter loan maturities, and increased use of interest rate floors for commercial real estate loans. According to the survey, banks will continue to maintain such lending standards in the next quarter.

Our take: Based on the central bank survey, banks have been tightening their standards and benchmarks for real estate loans in the past 12 quarters. Notwithstanding this trend, real estate loans increased 26% to P1.09t in 1Q15. This indicates that borrowers can still comply with the new standards and this has not significantly restricted financing for the real estate sector. – WealthSec