The Bangko Sentral ng Pilipinas (BSP) said the banking sector has generally kept its lending standards unchanged for both business and household loans during the months of July, August and September.
According to the results of BSP’s Senior Bank Loan Officers’ Survey (SLOS) for the third quarter this year, which uses two methods to assess credit standards, a larger proportion of surveyed banks said they have maintained their overall lending standards for loans to businesses and households as per its modal approach. Based on the diffusion index (DI) method, the results were “mixed trends” as credit standards for businesses showed a net tightening while it was a net easing in the loan standards for households.
About 77.1 percent of the 51 surveyed banks said lending standards to enterprises were broadly unchanged using the modal approach but indicated a net tightening for all companies regardless of size based on the DI model.
The BSP noted that the reason for the net tightening of credit standards were the following: the deterioration of borrowers' profiles; reduced risk tolerance; a more uncertain economic outlook; and stricter financial system regulations.
“On specific lending standards, the net tightening of overall credit standards was observed through increased use of interest rate floors, stricter collateral requirements and loan covenants, shortened loan maturity, and wider loan margins,” said the BSP.
The SLOS also indicated that for the fourth quarter this year, more banks expect to maintain current lending standards for businesses based on the modal approach. Using the DI method, there was again expectations of net tightening because of these factors: decline in tolerance for risk; deterioration in borrowers' profiles; and less optimistic economic outlook.
About 64.9 percent of surveyed banks said lending standards to households were likewise unchanged based on modal approach but showed a net easing for consumer loans based on the DI approach. The reason for the net easing were the following: increased tolerance for risk; improvement in borrowers' profiles; profitability of banks' portfolios; and the less uncertain economic prospects.
“In terms of specific credit standards, net easing was shown in the longer loan maturity of housing loans and personal/salary loans as well as increased size of credit lines for credit card loans,” noted the BSP. “On one hand, net tightening of lending standards for consumer loans was revealed through tighter collateral requirements and loan covenants, wider loan margins, reduced size of credit lines (particularly for housing loans, auto loans, and personal/salary loans), and increased use of interest rate floors,” it added.
For the fourth quarter, suveyed banks think they may also maintain credit standards for household loans based on the modal approach. The DI-based results is still a net easing in overall credit standards “driven by improvement in borrowers' profiles and profitability of banks' portfolios, as well as increased risk tolerance.”
The SLOS also includes the lending standards for commercial real estate loans and residential real estate loans.
For the third quarter, about 73.5 percent of surveyed banks said their lending standards for commercial real estate loans were unchanged based on the modal approach but showed a net tightening as per DI results due to decline in risk tolerance, deterioration in borrowers’ profiles, and more pessimistic economic expectations.
The BSP said results also showed unchanged lending standards for the fourth quarter while DI-based results indicated a net tighter loan standards for commercial real estate loans.
The demand for commercial real estate loans is also seen to be the same in the last quarter of 2022 based on the modal approach. The DI model, meantime, showed a net increase in loan demand due to the following: improvement in customers’ economic outlook; banks’ more attractive financing terms; and lack of alternative sources of funds.
As for residential real estate loans, about 71.9 percent of surveyed banks said lending standards did not change in the third quarter based on the modal approach. DI-based results however, indicated a net easing of credit standards due to increased risk tolerance, less uncertain economic prospects, and an improvement in borrowers’ profiles and profitability of banks’ portfolios.
For the fourth quarter, majority of banks surveyed noted a broadly steady credit demand for housing loans. The DI approach showed a net rise in residential real estate loan demand for both the current quarter and the next quarter driven mainly by banks’ more attractive financing terms and higher housing investment, said the BSP.
The banking industry’s overall loan demand during the third quarter were broadly steady from both companies and consumers based on the modal approach.
Using the DI method, this showed a net rise an “overall loan demand from across all firm classifications and main categories of household loans (namely housing loans, credit card loans, and personal/salary loans),” said the BSP.
“The general net increase in credit demand from enterprises were reportedly due to improvement in customers' economic outlook and increase in customer inventory and accounts receivable financing needs. Similarly, the overall net rise in consumer loan demand was associated with higher household consumption, lower income prospects, and banks' more attractive financing terms,” it added.
Loan demand for the last quarter of the year is expected to be the same with 49 percent of surveyed banks believing there will be steady demand for business loans while 65.8 percent noted a similar trend for consumer loans.
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.