Banks’ lending standards mostly unchanged in the fourth quarter

MOST LENDERS maintained their overall credit standards for both enterprises and households in the fourth quarter, a Bangko Sentral ng Pilipinas (BSP) survey found.

The fourth quarter Senior Bank Loans Officers’ Survey of the central bank released on Friday showed the October to December period was the 43rd consecutive quarter when majority of the banks opted to keep their borrowing standards “broadly unchanged.”

For the said edition, 48 out of the 65 banks tapped for the poll responded, representing a response rate of 73.8%. Among respondents, 42 were universal and commercial banks and 23 were thrift banks.

The survey’s modal approach found that 84.8% of banks kept their loan standards for corporates, higher than the 81.6% with the same response in the third quarter of the previous year.

On the other hand, the diffusion index’s (DI) result pointed out to a net tightening of credit standards for enterprises. Respondent banks attributed to “their perception of stricter financial system regulations, deterioration in the profitability and liquidity of banks’ portfolios as well as in the profile of borrowers, and lower risk tolerance of respondent banks.”

“In terms of specific credit standards, the net tightening of overall credit standards was reflected in the reduced credit line sizes; stricter collateral requirements and loan covenants; and the increased use of interest floors,” the BSP said in the report.

“Banks’ responses likewise pointed to a net tightening of credit standards across all borrower firm sizes, namely, top corporations, large middle-market enterprises, small and medium enterprises (SMEs) and micro enterprises based on the DI approach,” it said.

Meanwhile, 89.7% of respondent banks also kept their overall credit standards unchanged for loans extended to households during the quarter, based on the modal approach. However, the DI approach likewise reflected a net tightening of credit standards for these kinds loans.

“The overall net tightening of credit standards for household loans was attributed by respondent banks largely to their more uncertain economic outlook, perceptions of stricter financial system regulations, and reduced tolerance for risk, along with a deterioration in borrowers’ profile,” the central bank said.

For this quarter, most of the respondent banks said they expect steady overall loan demand from firms and households,

Meanwhile, DI-based results show expectations of a net increase in credit demand from businesses and households.

“For business loans, the expected net increase in demand was associated largely with corporate clients’ higher working capital requirements,” the central bank said.

On the other hand, the expected net increase from household demand of loans was attributed to anticipation of higher household spending and “more attractive financing terms offered by banks.”

As for credit standards, banks said results based on the modal approach showed most respondent banks expect credit standards for firms to remain unchanged this quarter, while results based on the DI approach indicated expectations of continued net tightening of lending standards.

For household loans, both the modal and DI approaches showed expectations of steady credit standards “largely on account of respondent banks’ unchanged tolerance for risk and steady economic outlook, as well as expectations of unchanged profile of banks’ borrowers.” — LWTN