The banking sector has kept its lending standards mostly steady or unchanged for the third quarter period for both business and household loans, according to a Bangko Sentral ng Pilipinas (BSP) survey released Friday, Oct. 25.
Based on the latest Senior Bank Loan Officers’ Survey (SLOS), which uses two methods to assess lending standards, majority of banks maintained their overall credit standards using the modal approach. The other method which is the diffusion index (DI) method showed a net tightening of credit standards for both business and household loans.
As explained by the central bank, the modal approach look 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”. A negative DI indicates there are more banks that have eased their credit standards compared to those that tightened or “net easing”.
For loans to enterprises, the survey indicated that 80.4 percent of banks that participated in the third quarter tally said they did not change their credit standards as per the modal approach.
Compared to the previous quarter of 87 percent, this was lower in terms of banks that reported unchanged credit standards for business loans.
Using the DI method, there is a continued net tightening of credit standards during the period due to the deterioration in borrowers' profiles and the profitability of banks' portfolios.
Meanwhile, the BSP said that for the fourth quarter this year, there is an indication that more banks or about 90.2 percent said they plan to keep their credit standards as is, when it comes to business loans.
Using the DI method, there remains a net tightening of credit standards over the next quarter. “This expectation is due to the deterioration in borrowers' profiles and in the profitability and liquidity of banks’ portfolios, perception of stricter financial system regulations, and reduced tolerance for risk,” said the BSP.
As for loans to households, 80 percent of surveyed banks said they also did not change their credit standards for the third quarter using the modal approach. This was lower compared to 84.2 percent in the previous quarter survey.
The DI method, on the other hand, showed a net tightening of overall credit standards during the period following unchanged loan standards in the second quarter. The net tightening is due to the deterioration in borrowers' profiles and in the profitability of banks' portfolios, as well as banks' lower risk tolerance.
For the fourth quarter, 82.9 percent of surveyed banks said they will likely have unchanged lending standards for household loans when using the modal method.
As per the DI method, the BSP expects “banks’ outlook of maintained lending standards amid expectations of unchanged tolerance for risk and stable profiles of borrowers” will still prevail.
Overall, the SLOS indicated that loan demand for business and household loans will continue to be healthy in the next months.
Basically, the SLOS is a set of questions asked of loan officers to get their opinion on the overall credit standards and loan demand. For the latest tally, the BSP conducted the survey Sept. 10 to Oct. 15 with 52 participating banks.
The survey noted that demand for business or enterprises loans will remain robust with 72.5 percent of surveyed banks saying so based on the modal approach. This was a steady sentiment since in the second quarter, 72.2 percent noted the same thing.
The assessment using the DI method showed a lower net increase in business loan demand in the third quarter compared to the previous survey. “Nonetheless, the net increase in business loan demand during the quarter is due to customers' higher inventory and accounts receivable financing needs, as well as more optimistic economic outlook,” said the BSP.
For the fourth quarter, the central bank said 56.9 percent of surveyed banks expect “broadly steady loan demand” from businesses.
The DI results, meanwhile, showed a net increase in credit demand from businesses in the next quarter which was “driven mainly by businesses' higher inventory and accounts receivable financing needs.”
Demand for household loans have remained basically unchanged with 57.1 percent of surveyed banks saying this, while the DI approach showed a higher net increase in household loan demand during the period. This was because banks were seen to be offering more attractive financing terms and higher household consumption, said the BSP.
For the fourth quarter, the SLOS indicated that 60 percent of surveyed banks continue to expect steady demand for household credit.
Using the DI results, banks anticipate a net increase in household loan demand in the last quarter of the year because of higher household consumption and the more favorable lending terms of most banks.