Banks maintain credit standards in third quarter

MOST BANKS kept their overall lending standards untouched for both enterprises and households, a central bank survey found.

Based on the modal approach of the latest Senior Bank Loan Officers’ Survey of the Bangko Sentral ng Pilipinas (BSP) released Friday, the July to September period marked the 42nd straight quarter when majority of the respondent lenders said their borrowing standards were “broadly unchanged.”

The BSP uses the quarterly survey to monitor the lending decisions made by banks and to look through bank credit. The central bank said 50 of 66 banks responded to the poll, of which 42 were universal and commercial banks and 24 were thrift banks.

According to the survey’s modal approach, 81.6% of lenders said they kept their credit standards for loans to corporates, slightly lower than the 82.1% that said the same in the second quarter.

Meanwhile, the diffusion index (DI) approach found banks tightened their lending standards in the third quarter due to their perception of a deterioration in the profile of borrowers, their reduced tolerance for risk, and the less aggressive competition in the financial industry.

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

A positive DI for credit standards means more banks tightened lending rules compared with those that eased. A negative DI indicates the opposite.

On the other hand, 81.3% of the lenders reported that they maintained their overall credit standards, down from the 88% that said the same in the April to June period.

“The overall unchanged credit standards for household loans was attributed by respondent banks largely to their steady tolerance for risk and unchanged profile of bank borrowers,” the central bank said.

For the fourth quarter, majority of the lenders said that they anticipate to keep their credit standards steady. Meanwhile, DI-based result point to banks looking to tighten their lending standards for household loans as they anticipate “a deterioration in profitability of banks’ portfolios and a lower tolerance for risk.” — L.W.T. Noble