BSP survey shows credit standards holding steady in Q4

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Customers make bank transactions at a Bank of the Philippine Islands (BPI) branch in Makati, on May 24, 2013. -- BW FILE PHOTO

BANKS generally maintained their credit standards in the fourth quarter, according to a survey conducted by the Bangko Sentral ng Pilipinas (BSP), though banks that chose to ease lending norms outnumbered those moving to tighten.

The fourth quarter 2017 Senior Bank Loan Officers’ Survey showed that “most of the respondent banks continued to maintain their credit standards for loans to both enterprises and households during the quarter,” based on the modal approach.

However the diffusion index (DI) — the difference between the percentage of banks that tightened standards and those that eased–showed a “slight net easing” of lending standards for loans extended to both businesses and households.

The outcome of the survey show represents the 35th consecutive quarter, dating to the second quarter of 2009, that banks maintained their credit standards were unchanged.

The central bank uses the quarterly survey to understand the lending decisions made by banks and to monitor credit quality. Some 85.7% or 30 of 35 commercial banks responded to the survey.

The modal approach indicates that 88.9% of the banks maintained their credit standards last quarter. They also expect standards to hold steady this quarter.

However, the net easing outcome under the DI method was attributed to “improved profitability and liquidity of respondent banks’ portfolios; a more favorable outlook on the economy; and banks’ increased tolerance for risk, among others,” the BSP said.

In terms of specific credit standards, the net easing is “reflected in respondent banks’ increased credit line sizes; less strict collateral requirements; and longer loan maturities,” the report said, noting that the net easing mostly benefited micro-enterprises, while credit standards were unchanged for large firms, mid-market firms, small and medium enterprises.

The DI approach also shows that banks expect overall credit standards for business loans to tighten in the first quarter due to “banks’ perception of stricter financial system regulations.”

For loans to households, 90.5% of survey respondents maintained their credit standards — slightly higher than the previous comparable quarter.

Under the DI approach, the household loan business saw a “net easing of credit standards,” especially for credit cards and automobile loans. This was due to a “improvement in ther profitability of their portfolio, their increased tolerance for risk, and improvement in the profile of their household borrowers.”

“In terms of specific credit standards, results based on the DI approach indicated an overall increase in the size of credit lines and less strict collateral requirements.”

Banks anticipate unchanged lending criteria based on the modal approach, but see a net tightening under the DI method, particularly for credit card,personal loans, due to banks’ expectations of stricter financial regulations and reduced tolerance for risk.

Moreover, the survey indicated that a “majority” of the banks expect “stable overall demand” for loans from both enterprises and households.

Under the DI approach, however, results pointed to a net increase in loan demand across all firm sizes and all types of household loans.

Heightened loan demand for businesses is attributed to the “improvement in customers’ economic outlook,” while the increased loan demand for households will result from “higher household consumption, low interest rates and banks’ more attractive financing terms.”

For the first quarter, a “majority” of the survey respondents loan demand from both businesses and households to remain steady.

However more respondents expect overall demand for corporate and household loans (except credit card loans) to increase further in the second quarter due to “higher investment in plant or equipment and increased working capital needs of clients, and improvement in the economic outlook of borrower firms,” as well as expectations of “more attractive financing terms offered to clients and low interest rates along with higher household consumption.”

In the real estate lending business, 73.7% of the respondents indicated that lending standards were steady, lower than the 84.2% who responded similarly in the third quarter. The DI method, however, continued to indicate a net tightening of overall credit standards for commercial real estate loans for an eighth consecutive quarter

Loan officers expect to maintain their credit standards for commercial real estate clients, but the DI points to more net tightening.

Demand for commercial real estate loans was also unchanged in the fourth quarte. “A number of banks, however, indicated increased demand for the said type of loan on the back of increased investment in plant and equipment, improvement in borrower firms’ economic outlook, banks’ more attractive financing terms and lower interest rates,” the BSP said.

Most of the respondents project “generally steady loan demand,” while “a number of banks expect demand for commercial real estate loans to continue to increase.”

In the case of property loans extended to households, both modal and DI indicators showed that credit standards were unchanged, with the survey respondents unanimous on this point. For the first quarter, the BSP said banks will maintain an “unchanged tolerance for risk, a stable economic outlook and a steady profile of housing loan borrowers.”

Demand for housing loans rose in the fourth quarter and is expected to continue rising, the central bank said. — Elijah Joseph C. Tubayan