Bank lending standards still unchanged in Q1

By Lee C. Chipongian

The Bangko Sentral ng Pilipinas (BSP) said in a survey that the banking industry is maintaining the same lending standards – for the most part—since 2009.

MB file photo. MB file photo.

Based on its latest Senior Bank Loan Officers’ Survey (SLOS), bank lending standards for loans to both enterprises and households were broadly unchanged in the first quarter this year, indicating that banks continue to be prudent in managing risks, said the BSP.

“Despite volatility stemming from the external environment, domestic financial markets were supported by favorable investor sentiment amid a sound banking system and firm economic growth prospects,” it added in a quarterly inflation report.

The SLOS assess the lending standards based on two approaches, the modal approach and the diffusion index (DI).

Using the modal approach, a survey of 66 banks – these are 42 big commercial banks and 24 thrift banks -- show an unchanged credit standards for the past 40 quarters in a row or since the second quarter of 2009. The DI approach, on the other hand, still show a net tightening of credit standards for both loans to enterprises and households.

Lending to enterprises for the first quarter this year indicated that 72.9 percent of banks did not change their credit standards based on the modal approach.

The DI method indicated a net tightening of credit standards for the quarter, which was attributed by banks’ reduced tolerance for risk, deterioration in the profitability and liquidity of their portfolio, less favorable economic outlook, and perception of stricter financial system regulations, said the BSP. “DI-based results suggested stricter collateral requirements and loan covenants as well as increased use of interest rate floors,” said the BSP.

In terms of borrower firm size, banks’ responses pointed to a net tightening of credit standards for loans across all firm sizes namely, top corporations, large middle-market enterprises, small and medium enterprises (SMEs) and micro-enterprises based on the DI approach, the BSP added.

As for lending to households, the central bank noted that 73.3 percent of banks likewise did not change lending standards during the period. The DI approach however showed a net tightening of credit standards for household loans such as auto loans and personal/salary loans.

“The overall net tightening of standards for household loans reflected stricter collateral requirements and loan covenants, shorter loan maturities, and increased use of interest rate floors,” explained the BSP. Surveyed banks attributed the tightening of overall credit standards for household loans largely to their reduced tolerance for risk and deterioration in the profitability of their portfolio, said the BSP.