Banks’ lending standards have not changed in 2023 amid stable economic outlook, and a survey conducted by the Bangko Sentral ng Pilipinas (BSP) said the same credit standards will remain in the first quarter of this year for the same reason.

Based on the BSP’s latest Senior Bank Loan Officers’ Survey (SLOS) conducted between Dec. 6, 2023 and Jan 12, the result of which was released Friday, Jan. 26, most banks maintained the same credit standards for lending to businesses and consumers based on the modal approach, one of two models used to assess the SLOS. But according to the diffusion index (DI) method, it noted a net tightening of credit standards for firms and a net easing of loan standards for households.

As explained by the central bank, the modal approach looks at the option with the highest share of responses which is a tightening, easing or unchanged credit standards. In the DI approach, a positive DI means banks that have tightened their credit standards exceeds those that eased or “net tightening”. Meantime, a negative DI indicates there are more banks that have eased their credit standards compared to those that tightened or “net easing”.

For the fourth quarter 2023 survey, about 88 percent of the 61 surveyed banks did not amend or change their lending standards for loans to enterprises for most of last year.

For the DI approach, it showed a net tightening of overall credit standards across all borrower firm sizes due to banks' lower risk tolerance, deterioration of borrowers' profiles and profitability of banks’ portfolios, along with stricter financial system regulations, said the BSP.

For the first quarter this year, the central bank said that using both the modal and DI methods, banks expect a generally unchanged credit standards for enterprises because of their continued “sustained tolerance for risk and stable outlook for the overall economy as well as for industries and firms, along with the steady profiles of borrowers.”

Demand for loans for enterprises remained stable, with 66 percent of surveyed banks saying so, based on the modal method. However, the DI approach showed a net increase in loan demand from across all firm classifications driven by bank clients’ more optimistic economic outlook, increased customer inventory financing and accounts receivable needs, including lack of other sources of funds, according to the BSP.

For the current quarter, banks also expect broadly steady loan demand from businesses while DI method anticipate a net rise in credit demand from businesses due to customers' more positive economic prospects, higher customer inventory financing and accounts receivable needs.

For commercial real estate loans (CRELs), the latest survey showed that 82.9 percent of respondent banks decided to maintain their overall credit standards while the DI method had a net tightening due to a deterioration in borrowers' profiles and banks’ reduced tolerance for risk.

In the first quarter this year, “a larger number of participating banks anticipate to keep their loan standards for CRELs unchanged based on the modal approach, while the DI-based results show expectations of net tightening credit standards for CRELs,” noted the BSP.

Loan demand for CRELs is generally unchanged and is also expected to be maintained in the first quarter this year. The DI-based results cited improvement in customers’ economic prospects, higher customer inventory and accounts receivable financing needs, bank's more attractive financing terms, and manageable interest rates.

The survey said 70.6 percent of surveyed banks also kept their lending standards unchanged for household loans for most of 2023. DI-based results also pointed to net easing credit standards for consumer loans mainly associated with the improvement in profitability of banks’ portfolios, higher risk tolerance, and less uncertain economic outlook, said the BSP.

For the first quarter this year, banks do not expect to make changes in their credit standards for households but taking in the results of the DI approach, this indicated a net easing “driven by banks’ expectations of improved profitability of their portfolios, higher risk tolerance, and more favorable economic outlook.”

About 56.3 percent of banks said demand for household loans were generally steady based on the modal approach. The DI method, however, pointed to a net increase in consumer loan demand across all major loan categories due to higher household consumption and banks' more attractive financing terms.

For for the current quarter, 50 percent of surveyed banks expect higher demand for credit from households. The DI approach noted that consumer loan demand continue to be driven by expectations of higher household consumption and housing investment, banks’ more attractive financing terms, and lower income prospects.

Meanwhile, 64.5 percent of surveyed banks did not change their housing loan credit standards, while DI results had a net easing because of the higher profitability in banks’ portfolios, more desirable borrowers' profiles, and banks’ increased risk tolerance.

For the current quarter, the BSP said most respondent banks anticipate unchanged lending standards for housing loans while the DI results pointed to expectations of net easing in housing loan standards.

As for demand, banks anticipate an increase in housing loans in the first quarter this year.