MOST BANKS imposed more stringent overall lending standards in the second quarter when most parts of the country were under a strict lockdown, a survey by the central bank showed.
“We have observed a slowdown in bank lending during the quarter. There has been a tightening of bank lending standards. This is due to the less favorable economic outlook and to banks’ reduced tolerance for risk,” Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno said in a pre-recorded speech during a briefing on Monday.
The latest Senior Bank Loan Officers’ Survey released by the BSP showed most respondent banks tightened their credit standards for both enterprises and households during the April to June period.
“This is the first time that the majority of respondent banks reported tighter credit standards following 44 consecutive quarters of broadly unchanged credit standards,” Lara Romina E. Ganapin, acting deputy director of the BSP Department of Economic Research, said during the briefing.
The trend of tightening credit standards reported by banks appear to be similar to what was observed during the global financial crisis in the first quarter of 2009, Ms. Ganapin said.
The survey looks to gauge banks’ lending decisions. Only 51 out of 64 banks sent their response to the survey between June 1 to July 7.
Majority of the banks (69.4%) reported tighter loan standards for all enterprises — from top companies to microenterprises, compared to 24% in the first quarter.
The diffusion index (DI) approach likewise showed net tightening in overall credit criteria.
“Respondent banks attributed the tightening of credit standards largely to less favorable economic outlook, deterioration in the profiles of borrowers, and banks’ reduced tolerance for risk, among other factors,” the BSP said.
Meanwhile, 60.6% of respondent banks said they implemented stricter credit standards for consumers during the quarter, up from the 22% that reported tighter credit standards in the prior quarter. This covered all types of consumer loans, such as housing, credit card, auto, and personal/salary loans.
During the quarter, banks reduced credit line sizes, imposed more rigorous collateral requirements and loan agreements, and increased the use of interest rate floors.
Majority of the respondent banks expect tougher loan criteria for both enterprises and households in the next quarter, amid the worsening economic outlook and lower-risk tolerance of lenders.
Meanwhile, banks surveyed saw lower overall demand for loans from enterprises and households in the second quarter.
The slower loan demand from businesses was attributed to the “deterioration in clients’ business prospects amid the lockdown, decline in customer inventory financing needs and working capital requirements.”
Lower household consumption and housing investments were cited as the main reason for the decline in household loan demand during the period. — Luz Wendy T. Noble