Banks have maintained their overall credit standards for both business and household loans in the months of July to September, according to a Bangko Sentral ng Pilipinas (BSP) survey.

Based on the third quarter Senior Bank Loan Officers’ Survey (SLOS), which uses two methods to assess lending standards, majority of banks maintained their overall credit standards using the modal approach. The other method which is the diffusion index (DI) had mixed results of a net tightening of loan standards to businesses and a net unchanged lending standards for households.

As explained by the central bank, the modal approach look at the option with the highest share of responses which is a tightening, easing or unchanged credit standards. In the DI approach, a positive DI means banks that have tightened their credit standards exceeds those that eased or “net tightening”. Meantime, a negative DI indicates there are more banks that have eased their credit standards compared to those that tightened or “net easing”.

In the third quarter, 80.9 percent of 48 surveyed banks conducted between Sept. 4 to Oct. 13 had unchanged lending standards for loans to enterprises using the modal approach.

The DI approach however indicated a net tightening of overall credit standards across all borrower firm sizes due to the following: lower risk tolerance; deterioration in the profitability of banks' portfolios; and decline in the quality of borrowers' profiles.

The next quarter which is the current month of October until December, the modal approach still showed generally maintained credit standards for firms.

As for the DI method for the fourth quarter, it still indicated a net tightening of lending standards “amid expectations of a deterioration in borrowers' profiles and  decline in the profitability of banks' portfolios along with banks’ reduced tolerance for risk,” said the BSP.

The SLOS also showed results for commercial real estate loans (CRELs) of which 84.4 percent of surveyed banks had steady lending standards for commercial real estate loans. The CRELs is under lending to enterprises.

DI-based method resulted to a net tightening of credit standards for CRELs due to a decrease in the following: risk tolerance; deterioration of borrowers' profiles; and less favorable economic outlook.

“Over the following quarter, a higher proportion of banks expect to retain their loan standards for CRELs based on the modal approach, while the DI method showed a net tightening of credit standards for CRELs,” said the BSP.

About 68.8 percent of surveyed banks maintained their lending standards for loans to households.

As for the DI approach, this had a net unchanged credit standards for household loans on the back of banks’ steady economic outlook; sustained profitability of banks’ portfolios; unchanged risk tolerance; and steady profile of borrowers.

For the fourth quarter, the modal approach indicated generally unchanged credit standards for household loans while the DI approach showed expectations of a net easing in household credit standards due to improvement in the profitability of banks' portfolios and borrowers' profiles along with banks’ higher tolerance for risk, said the BSP.

Meanwhile, 69 percent of surveyed banks said they did not change the credit standards for housing loans.

The DI approach again showed a net easing of credit standards for housing loans mainly because of banks’ “less uncertain economic outlook along with improvement in profitability of banks' portfolios and borrowers' profiles,” said the BSP.

The SLOS, first released in 2009, helps the BSP assess banks’ lending behavior and to monitor credit growth in the country, especially current asset market conditions.