By LEE C. CHIPONGIAN
The lending standards of banks have not changed over the past 43 quarters or since mid-2009 partly because of steady loan demand, according to the latest Senior Bank Loan Officers’ Survey (SLOS) of the Bangko Sentral ng Pilipinas (BSP).
The fourth quarter SLOS results indicated that commercial and thrift banks have broadly the same credit standards for loans to enterprises or businesses and households, based on the modal approach which was one of the two methods used.
If using the diffusion index (Dl) approach, this showed a net tightening of overall credit standards for both loans. Compared to the previous survey (third quarter 2019) the BSP said the overall credit standards for loans to enterprises had a net tightening while loans to households were unchanged.
The BSP said majority of banks that participated in the survey attested to a stable overall demand for loans from both enterprises and households based on the modal approach.
Based on the Dl approach, there was a net increase in overall demand for business loans as well as household loans.
The loan demand from businesses increased because of higher requirements for working capital while household loan demand was also higher due to household consumption, banks’ lower interest rates and more attractive financing terms.
The BSP said that of 48 banks that replied, 84.8 percent said that they have maintained their credit standards for loans to enterprises based on the modal approach but when the DI method was applied, it showed a net tightening of credit standards for the fourth quarter 2019.
“(This was) attributed largely to their (banks’) 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,” said the BSP.
It further noted that 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.”
“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 and micro enterprises based on the Dl approach,” said the BSP.
As for lending to households, the BSP said 89.7 percent of banks surveyed – based on the modal approach – did not change their credit standards in the last quarter of 2019.
“However, results based on the Dl approach reflected net tightening of credit standards for household 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 deterioration in borrowers’ profile,” said the BSP.