By Lawrence Agcaoili (The Philippine Star) | Updated July
27, 2015 - 12:00am
Philstar.com/File
MANILA, Philippines - Banks further tightened their lending
standards for commercial real estate loans in the second quarter, a year after
the Bangko Sentral ng Pilipinas (BSP) introduced stricter rules on bank’s real
estate exposure.
Results of the second quarter 2015 Senior Bank Loan
Officers’ Survey showed a net tightening of overall credit standards for
commercial real estate loans for the 12th consecutive quarter.
“The net tightening of overall credit standards for
commercial real estate loans was attributed by respondent banks to perceived
stricter oversight of banks’ real estate exposure along with banks’ reduced
tolerance for risk,” the BSP said.
The central bank said banks reported 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.
For the next quarter, the BSP survey showed most of the
respondent banks expect to maintain their credit standards for commercial real
estate loans.
The survey also revealed the demand for commercial real
estate loans was also unchanged in the second quarter based on the modal
approach.
“A number of banks, however, indicated increased demand for
the said type of loan on the back of clients’ improved economic outlook and
banks’ more attractive financing terms,” the central bank added.
Over the next quarter, a number of banks expect demand for
commercial real estate loans to continue increasing in the following quarter.
Similarly, credit standards for housing loans extended to
households showed net tightening in the second quarter due to perceived
stricter financial system regulations along with banks’ reduced tolerance for
risk and deterioration in the profile of borrowers.
Data showed banks’ exposure to real estate increased 23
percent to P1.27 trillion in the first quarter of the year from P1.03 trillion
in the same period last year. Real estate loans, which accounted for the bulk
of the banks’ exposure to the sector, jumped 26 percent to P1.09 trillion from
P866.62 billion.
In June last year, the BSP introduced stricter rules on
banks’ real estate exposure to ensure lenders have enough capital to absorb any
potential losses.
The central bank said the new measure simply reinforces the
prudential policy that banks must have sufficient capital to absorb any
potential shock on its credit exposures.
The pre-emptive macroprudential policy measure approved by
the Monetary Board required stress tests for banks to determine if their
capital will be enough to absorb credit risk that may arise from their exposure
to the property sector.
The BSP explained that universal, commercial, and thrift
banks would need to meet a capital adequacy ratio of 10 percent of their
qualifying capital following the stress test results.
Moreover, universal and commercial banks, along with their
thrift bank subsidiaries will also need to keep a Common Equity Tier 1 level of
at least six percent of their qualifying capital. Stand-alone thrift banks,
meanwhile, are required to maintain a Tier 1 ratio of six percent of their
qualifying capital.
Banks that fail to comply would need to explain formally to
the BSP why they should not be given any further remedial action.
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