BSP notes tight lending for commercial real estate

LA Bangko Sentral ng Pilipinas (BSP) reported that banks are more reluctant to lend for commercial real estate purposes in the first quarter of the year.

In its quarterly report on the Survey of Senior Loan Officers (SLOS), the central bank said it recorded a sharp tightening of lending standards for commercial real estate loans (CREL) from January to March this year.

This is the 25th consecutive quarter of net tightening of CREL borrowing standards. It is also consistent with the net tightening of corporate credit standards over the period under the Diffusion Index (DI) approach.

In the DI approach, a positive DI for credit standards indicates that the proportion of responding banks that have tightened their credit standards exceeds those that have relaxed them, resulting in a so-called “net tightening” of standards loan.

The BSP said respondents identified the following key factors in tightening global credit standards for CRELs: reduced risk tolerance of banks, deteriorating borrower profile, less favorable economic outlook, and tighter financial regulation. strict.

In terms of specific lending standards, the net tightening of overall lending standards for CRELs has been associated with wider lending spreads, reduced line of credit sizes, collateral requirements and covenants. more stringent lending rules, increased use of interest rate floors and shorter loan maturities.

For the second quarter of 2022, the BSP said that while the majority of banks expected unchanged standards for CRELs based on the modal approach, the DI method reflected banks’ expectations for tighter net credit standards for the CRELs.

The ID-based results also revealed a net increase in demand mainly due to clients’ optimistic outlook on the economy and the bank’s more attractive funding conditions.

In its previous report, the BSP said that the overall outstanding loans of universal and commercial banks increased at a faster rate of 8.8% in February compared to the revised rate of 8.4% in January.

Broken down, outstanding loans to production activities increased by 9.7% in February after 9.5% (revised) in January driven by the increase in loans to real estate activities (+16%); wholesale and retail trade, automobile and motorcycle repair (5.7%); information and communication (33.3%); financial and insurance activities (13.2%); manufacturing (11%) and supply of electricity, gas, steam and air conditioning (0.4%).

Garland K. Long