Banks are seeing strict lending for commercial real estate

Banks see tough credit rules for commercial real estate loans in the fourth quarter of the year, but easing it for individual borrowers, according to Bangko Sentral ng Pilipinas (BSP).

The central bank said the responses from lenders to its senior bank loan officers (SLOS) survey for the third quarter of 2021 signaled the adoption of the diffusion index (DI) approach.

On the flip side, banks reported a net increase in demand for CRELs due to “better economic prospects for customers and lower interest rates”.

Meanwhile, the DI-based approach predicts a net relaxation in home loan credit standards due to expected improvements in borrower profiles and improved economic outlook.

Survey responses also included “Expectations of a net increase in demand for home loans in the fourth quarter (fourth quarter) of 2021, in anticipation of more attractive financing conditions from banks, lower interest rates and increasing consumer housing investments”.

The survey results showed that from July to September 2021, banks tightened their credit terms on CRELs for the 23rd straight quarter.

“The banks surveyed cited decreased risk tolerance, deterioration in borrower profiles and a more uncertain economic outlook as key factors behind the tightening of general credit standards for CRELs in the third quarter (third quarter) of 2021,” said the BSP.

The reasons cited for the net tightening of general lending standards for CREL were higher credit margins, smaller credit line amounts, stricter collateral and credit requirements, greater use of interest rate caps and shorter loan terms.

The Bangko Sentral added that DI-based data showed a net shortage for home loans in the third quarter of 2021.

The central bank said it has been running the SLOS since 2009 to gain a better understanding of banks’ lending behavior, which is a key indicator of the country’s lending activity.

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