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Banks tighten loan standards for real estate, housing in Q2

By Lawrence Agcaoili (The Philippine Star) | Updated July 25, 2016 - 12:00am

MANILA, Philippines - Banks continued to tighten lending standards for commercial real estate and housing loans in the second quarter of amid the reduced tolerance for risk and perception of stricter financial system regulations.

Dennis Lapid, deputy director at the BSP’s Department of Economic Research, said the central bank’s second quarter Senior Loan Officers Survey showed a net tightening of overall credit standards for commercial real estate and housing loans.

“The diffusion index (DI) approach, however, continued to indicate a net tightening of overall credit standards for the second consecutive quarter,” he said.

In terms of specific credit standards, Lapid said respondent banks showed wider loan margins, reduced credit line sizes, stricter loan covenants, and increased use of interest rate floors.

In the diffusion index approach, a positive index for credit standards indicates that the proportion of banks that have tightened their credit standards is greater compared to those that eased.

Using the modal approach, Lapid pointed out about 90.5 percent of the respondent banks indicated unchanged credit standards for commercial real estate loans in the first quarter.

In the modal approach, the results of the survey are analyzed by looking at the option with the highest share of responses.

Lapid said the demand for commercial real estate loans was also unchanged in the second quarter based on the modal approach.

However, he revealed a number of banks indicated increased demand for the said type of loan on the back of increased working capital and inventory financing needs of borrowers, clients’ improved economic outlook, and more attractive financing terms offered by banks.

Over the next quarter, although most of the respondent banks anticipate generally steady loan demand, a number of banks expect demand for commercial real estate loans to increase further.

The results of the first residential real estate price index (RREPI) released last June showed the country’s property sector remained vibrant in the first quarter.

The RREPI increased by 9.2 percent in the first quarter from 5.1 percent in the fourth quarter of last year.

“This represents a vibrant housing industry in the Philippines and the robustness of this conclusion is confirmed by the trends in consumer prices as well as the recent result of the Consumer Expectation Survey,” BSP Deputy Governor Diwa Guinigundo earlier said.
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