Banks' conduct of assessing credit standards continue to be on the cautious side as shown in the latest Bangko Sentral ng Pilipinas (BSP) Senior Bank Loan Officers’ Survey (SLOS).
This was due in part to banks’ “decreased tolerance for risk,” according to BSP Governor Benjamin E. Diokno.
During the presentation of the SLOS second quarter results, BSP director Dennis D. Lapid of the Department of Economic Research said that generally, banks were able to maintain their overall credit standards for loans to both enterprises and households based on the modal approach.
Using the other approach, the diffision index (DI), Lapid said this continue to indicate a net tightening of overall lending standards for both loans to enterprises and households during the quarter.
The SLOS said 70 percent of the 53 surveyed banks said their overall credit standards for loans to enterprises were unchanged but based on the DI, there was again a net tightening of lending standards across all borrowers especially top corporations, large middle-market enterprises, small and medium enterprises, and micro enterprises due to “a deterioration in the profiles of borrowers and in the profitability of banks’ portfolio, reduced tolerance for risk, as well as a more uncertain economic outlook, among other factors,” said the BSP.
The net tightening of lending standards was evidenced by reduced credit line sizes, stricter collateral requirements and loan covenants, as well as increased use of interest rate floors. There was however some form of easing was shown in terms of narrower loan margins and longer loan maturities, said the BSP.
About 68.6 percent of surveyed banks said lending to households were also unchanged in the second quarter but DI-based results showed a net tightening such loans for housing, auto, and personal/salary loans while there was a net easing in credit card loans. Banks pointed to a deterioration in borrowers’ profile and in the profitability in bank’s portfolio for the net tightening of lending standards. A lower tolerance for risk and a more uncertain economic outlook were also cited.
As for real estate loans, the SLOS showed that 71.1 of surveyed banks have
“broadly unchanged” credit standards for commercial real estate loans (CRELs). The DI-based approached again indicated a net tightening for the 22nd consecutive quarter, said the BSP, with banks citing “a more uncertain economic outlook, a lower tolerance for risk, and deterioration in borrowers’ profile as the key contributors to the tightening of overall credit standards for CRELs for the quarter.”
“In terms of specific lending standards, the net tightening of overall credit standards for CRELs continued to indicate wider loan margins, reduced credit line sizes, stricter collateral requirements and loan covenants, increased use of interest rate floors, and shortened loan maturities. For the next quarter, banks’ responses continued to point to expectations of net tighter credit standards for CRELs based on the DI approach,” said the BSP.
Generally, loan demand from both businesses and households are steady. DI-based results however showed a slight net increase in overall demand for business loans while a net decline in demand for all categories of consumer loans was observed, said the BSP.
“The slight net increase in loan demand from enterprises was driven by the improvement in customers’ economic outlook and increased accounts receivable and inventory financing needs of clients,” noted the BSP.
The SLOS was started in 2009 to enable the BSP to assess the “strength of credit activity” the “robustness of credit demand” and prevailing conditions in asset markets.