The Bangkok Sentral ng Pilipinas (BSP) has released a report saying that banks reporting tighter overall credit standards for commercial real estate loans outnumber ones reporting the opposite. The banks are continuing to indicate signs of increased restrictions to lending to this sector in the face of tighter regulatory scrutiny on the industry’s exposure to the housing and office space industry.
Si Lom, Bang Rak, Bangkok, TH
The tightening of credit standards for commercial real estate loans was attributed by banks to a stricter oversight of their real estate exposure, along with a reduced tolerance for risk.
The BSP indicated that the banks were starting to do a combination of higher interest rates and lower credit line sizes for commercial real estate loans. In spite of these factors, the BSP’s second quarter Loan Officer’s Survey indicated 82.4 per cent of banks said overall credit standards were unchanged. It found that banks showed unchanged collateral requirements, loan maturities, loan covenants, and interest rate floors during the survey period. According to the banks, most of their clients were untroubled by the slight tightening of the credit standards.
A number of borrowers have improved economic outlooks. They have increased their inventory and financing needs. Demand for commercial real estate loans have remained strong as a result and they have supported the growth of companies in various parts of the country. Almost all the bank respondents reported that they expect demand for commercial real estate to continue to increase in Q3 of this year.
The possible tightening of credit standards for borrowers comes in the midst of an expected easing of requirements of customers seeking other types of loans. The BSP had reported that more banks will likely relax their credit standards for consumers and businesses due to competition in the industry and low interest rates.
Despite the tighter watch on lending practices, BSP Governor Amando M. Tetangco Jr. has said on more than one occasion that the formation of a real estate “bubble” which, if it were popped would lead to tighter access fund to everyone, is still “a remote possibility.”
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