By Melissa Luz T. Lopez, Reporter

Lending standards for businesses, households steady

Posted on April 23, 2016

BANKS kept lending standards for both business and households unchanged as the year opened, though some lenders said they were slightly stricter in granting loans to businesses, results of a recent central bank survey showed.

Under the first quarter Senior Loan Officers’ Survey of the Bangko Sentral ng Pilipinas (BSP), universal and commercial banks said they kept their credit criteria used in evaluating loan applications for both consumers and companies, sustaining a trend since the second quarter of 2009 when the survey was started.

The central bank conducts the quarterly survey to better understand the lending behavior of big banks, which is among the key measures of the strength of credit activity in the country. A total of 32 out of 35 banks responded to the survey.

Majority of banks said they used the same criteria in granting debts to households at 81%, steady from the 81.8% who said so during the fourth quarter of 2015, as the lenders stood pat on risk tolerance and client profiling.

“In particular, banks’ responses indicated overall unchanged loan margins and maturities,” the report added, pointing out steady collateral requirements and covenants for car and salary loans over the January-March period.

Meanwhile, 86.7% of banks said they made no changes to their criteria for approving credit lines to private firms, slipping from the 90.3% tallied during the fourth quarter.

But under the diffusion index (DI) approach -- which compares the number of banks that tightened rules against those who eased theirs -- more banks are seen to have grown stricter in lending to businesses, in light of reduced risk tolerance, a perception of stricter financial system regulations, and a “more uncertain” outlook on some industries.

Lenders were seen to have grown more stringent in their collateral requirements and loan covenants for company debts, the survey bared.

Bank officers also said they kept lending standards for commercial real estate loans unchanged for the quarter, but a net tightening was observed under the DI approach where more lenders said they grew more rigid in terms of loan requirements.

In particular, the tightening was put in place through wider loan margins, reduced credit line sizes, stricter collateral requirements, and increased use of interest rate floors before approving any real property debt, the central bank said.

Some 82.4% of the lenders also said they retained the criteria for granting housing loans, though more banks noted of some easing in requirements despite a higher demand observed during the period.

Loan demand is expected to remain generally steady for the quarter ahead, though some banks expect more corporate borrowing except for micro enterprises under the DI index, as businesses pile up on additional working capital to sustain operations.

“Over the next quarter, most of the respondent banks expect unchanged loan demand from both firms and households,” Dennis D. Lapid, deputy director of the BSP’s Department of Economic Research, said in a press briefing on Friday. “However, a larger proportion of respondents expect overall demand for corporate loans to increase further in the next quarter relative to those who indicated the opposite.”

Household loans are also seen growing except for credit card and car loans to reflect stronger private consumption, while also taking advantage of low-cost financing terms offered by banks.

For the next quarter, banks expect themselves to keep overall loan standards steady, but expect to introduce even simpler criteria as the lenders eye to hand out more debts amid tougher competition within the sector and a more bullish outlook on the economy.

Some banks also expect to relax requirement on corporate loans with the goal of booking more profits under their loan portfolio and inviting more borrowers to tap their banks for credit.