The Philippines: Banks tighten lending standards

  • 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 pandemic.
  • Dennis Lapid, deputy director of the Department of Economic Research at the Bangko Sentral ng Pilipinas (BSP), said the results of 4Q20’s Senior Bank Loan Officers’ Survey (SLOS) showed a net tightening of the overall credit standards for commercial real estate loans for the 20th consecutive quarter.
  • “Respondent banks pointed to a less favorable economic outlook, a lower tolerance for risk, as well as deterioration in borrowers’ profile as the major contributors to the tightening of overall credit standards for commercial real estate loans,” Lapid said.
  • On specific credit standards, Lapid said the net tightening of overall credit standards for commercial real estate loans continued to reflect wider loan margins, reduced credit line sizes, stricter collateral requirements and loan covenants, increased use of interest rate floors, and shortened loan maturities.
  • For 1Q21, Lapid said banks’ responses point to expectations of net tighter credit standards for commercial real estate loans based on the diffusion index approach.
  • Banks expect a net decline in the demand for commercial real estate loans in 1Q21 amid the deterioration in customers’ economic outlook.
  • Likewise, Lapid said banks are also expected to further tighten overall credit standards for housing loans amid more uncertain economic prospects, deterioration in borrowers’ profile and profitability of bank’s portfolio, and lower risk tolerance of banks.
  • Financial institutions are also pointing to a decline in loan demand for housing loans in 1Q21, reflecting largely the consumers’ reduced appetite for housing investment.
  • Latest data from the BSP showed the exposure of Philippine banks in the volatile real estate sector increased to 19.89% in end 2019 and almost touched the 20% ceiling set by the regulator.
  • The steady rise in the industry’s real estate exposure could be traced to higher loans extended to the sector, as well as rising property prices.

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