THE banks held on to tighter credit standards when extending commercial real-estate loans in the three months ending September this year, representing the ninth consecutive quarter the industry restricted the flow of credit to the sector, the Bangko Sentral ng Pilipinas (BSP) said.
The central bank said the sustained tightening of overall credit standards in the country was evident in stricter oversight of banks and wider loan margins during the period. The banks also reported reduced tolerance for risk, reduced credit lines and stricter loan covenants for commercial real-estate loans.
“[The] results of the Q3 2014 Senior Bank Loan Officers’ Survey showed that most of the respondent banks maintained their credit standards for loans to both enterprises and households during the quarter based on the modal approach. The diffusion index (DI) approach, likewise, showed unchanged overall credit standards for loans to enterprises as the number of banks indicating tighter credit standards equaled the number of banks that indicated easing credit standards. However, the DI approach pointed to a net tightening of overall credit standards for loans to households in Q3 2014 relative to the previous quarter, with a DI of 9.5 percent. In the previous quarter, credit standards for corporate lending were unchanged, while credit standards for loans to households showed a net tightening,” the BSP reported.
The central bank has imposed stricter monitoring in the lenders’ exposure to the real-estate sector to prevent asset bubble formation that could send the financial sector into a tailspin. A number of banks said that there was increased demand for commercial real-estate loans due to the improved economic outlook, lower interest rates and increased working capital financing needs of bank clients.
Lenders were also said they will remain vigilant and continue applying stringent credit standards as demand for commercial real-estate loans escalate in the last quarter of the year.