Banks maintain credit standards in Q3 -- BSP survey

Posted on October 22, 2016

BANKS generally kept their credit standards steady during the third quarter, although some lenders said they became stricter in anticipation of tighter rules and a reduced risk appetite, according to a recent central bank survey.

Officers of the country’s universal and commercial banks said they maintained their criteria in assessing loan applications filed by both consumers and businesses under the Senior Loan Officers’ Survey of the Bangko Sentral ng Pilipinas (BSP) released Friday.

The central bank conducts the quarterly survey to better understand banks’ lending behavior, which is one of the measures of local credit activity. A total of 32 out of 35 banks responded to the BSP survey, which covers changes to debt margins, collateral requirements, loan covenants, size of credit lines, length of loan maturities, and interest rate floors.

This trend was sustained for a 30th straight quarter since end-June 2009, the BSP said in a report, with “broadly unchanged” lending standards for corporates and individual borrowers.

Nearly all of the lenders or 93.1% said they used the same standards in extending loans to businesses, higher than 87.1% during the previous quarter. But a diffusion index (DI) approach pointed to a tightening, as more banks said they firmed up their standards against those that loosened rules, in light of a deterioration in the profitability of bank portfolios, a less favorable economic outlook, perceived stricter financial system regulations, banks’ reduced tolerance for risk, and deterioration of borrowers’ profiles.

As a result, bank loans saw somewhat stricter loan agreements and collateral requirements, alongside the increased use of interest rate floors for all firms except for microenterprises, the BSP said. Banks slightly relaxed their lending criteria for micro-firms, against some tightening in credit for all other segments.

Banks likewise maintained their lending standards for consumers, with 90.9% saying they left their criteria unchanged, higher than the 83.3% from the second quarter. However, a net tightening was observed under the DI approach, as lenders said they grew somewhat more stringent in terms of loan requirements.

“The tighter credit standards were attributed by respondent banks largely to their perception of stricter financial regulations,” the report read, as seen in wider loan margins for housing and car loans, and tighter collateral requirements for housing, car, and personal loans or advanced salary credits.

Still, loan demand is viewed to be “stable” for both consumers and corporates, although a net increase in household loans was observed under the DI approach, as borrowers take advantage of “more attractive” financing terms to fund increased consumption.

Most banks also said they kept lending criteria for real estate unchanged. However, more lenders said they somewhat tightened their standards as they reduced credit line sizes and stricter collateral rules.

An improved economic outlook and the need for increased working capital, meanwhile, fueled a net increase in property loans, the BSP said.

Home loans also saw slightly stricter terms, while demand steadied.

“The net tightening of credit standards for housing loans was attributed by respondent banks largely to perceived stricter financial system regulations and as well as clients’ less favorable economic outlook,” the report added.

Banks expect lending criteria to remain steady during the last three months of the year, although some tightening may be seen for corporate borrowers as banks anticipate a “less favorable” economic outlook. Meanwhile, some easing may be seen for consumer credit due to higher risk tolerance and increased competition. -- Melissa Luz T. Lopez