Banks see steady growth in loan demand

By Lee C. Chipongian

Banks surveyed by the Bangko Sentral ng Pilipinas (BSP) said loan demand will continue to increase at a steady pace in the months ahead.

MB file photo. MB file photo.

Based on the BSP’s latest Senior Bank Loan Officers’ Survey (SLOS), loan demand such as loans to the real estate sector, enterprises and households showed an overall stable numbers in the first quarter 2019, which means lending standards to these sectors were largely unchanged and has been for some time.

“Banks continued to see stable overall demand for loans from both enterprises and households during the quarter (first quarter 2019),” said the BSP, using the modal approach to assess respondents’ replies.

But, in using the diffusion index (DI) approach, the BSP said results showed a net increase in loan demand particularly from large middle-market enterprises and small and medium enterprises as well as for credit card loans.

“The overall net increase in loan demand from firms was attributed by banks to their customers’ higher working capital requirements as well as increased investment in plant or equipment. Meanwhile, respondent banks attributed the overall net increase in household loan demand to higher household consumption, among others,” said the BSP.

As for the second quarter this year, the central bank said banks see an unchanged overall loan demand from both households and enterprises. “For business loans, the expected net increase in demand was associated by respondent banks to their corporate clients’ higher working capital requirements, among others. Meanwhile, the anticipated net increase in loan demand from households was attributed by respondent banks to expectations of higher household consumption, lower interest rates, and banks’ attractive financing terms, among others,” noted the BSP.

About 73.3 percent surveyed banks said lending standards for commercial real estate loans were also unchanged in the first three months of 2019.
The DI approach still show a net tightening of overall credit standards for 13 quarters in a row. This is because of banks’ perception of “stricter financial system regulations and reduced tolerance for risk.”

“The net tightening of overall credit standards for commercial real estate loans reflected respondent banks’ wider loan margins, reduced credit line sizes, stricter collateral requirements and loan covenants, shortened loan maturities, and increased use of interest rate floors,” said the BSP.
Real estate loans continue to have steady demand, it added, both for the first quarter and the second quarter.

Overall, the BSP said the banking industry has maintained the same lending standards – for the most part—since 2009.

The SLOS showed 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.”

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.

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.

BSP Governor Benjamin E. Diokno said the “current growth in bank lending reflects sustained economic activity in key productive sectors and households. Based on survey results, banks noted stable demand for loans from firms and households.”