The banking sector has been able to maintain the same lending or credit standards for business and household loans for the fourth quarter 2024, while the demand for these loans were steady and expected to continue this year, based on the latest central bank survey.
According to the Bangko Sentral ng Pilipinas’ (BSP) Senior Bank Loan Officers’ Survey (SLOS), majority of the 55 surveyed banks did not change their lending standards during the months of October to December last year. This was based on the two review models used by the BSP to assess the survey results, such as the modal approach and the diffusion index (DI) method.
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”. Meantime, a negative DI indicates there are more banks that have eased their credit standards compared to those that tightened or “net easing”.
The BSP conducts the quarterly SLOS to improve its understanding of banks’ lending behavior, which is an important measure of the country's credit activity and lending growth.
Data released by the BSP on Friday, Jan. 31, indicated that most banks kept their lending standards unchanged for both business and consumer loans in the last quarter of 2024 while the DI method showed a net tightening of credit standards for business loans.
The survey results said 83.3 percent of surveyed banks did not change their credit standards for businesses using the modal approach, up from 80.4 percent in the third quarter SLOS.
The DI method however yielded a net tightening of credit standards because of the deterioration in borrowers’ profiles and the profitability of banks’ portfolio.
For the first quarter 2025, the survey using the modal approach indicated that 85.2 percent of the polled banks expect lending standards for business loans will still be unchanged.
The DI results showed the same standards for the current quarter amid the stable economic outlook and unchanged risk tolerance and borrower profiles, said the BSP.
As for loans to households, about 89.5 percent of surveyed banks said they have maintained their credit standards. This was a higher percentage compared to the previous SLOS of 80 percent.
The DI method showed generally unchanged credit standards in the fourth quarter 2024 due to the unchanged profile of borrowers, tolerance for risk, and the profitability of banks’ portfolio.
Loans to households’ credit standards are expected to remain unchanged this quarter based on the modal approach, with 84.2 percent of banks saying so.
The DI approach showed a net tightening standards because of banks' expectations of a deterioration in the profitability of their portfolios, as well as lower risk tolerance, said the central bank.
Basically, the SLOS is a set of questions asked of loan officers to get their opinion on the overall credit standards and loan demand. The BSP conducted the fourth quarter survey on Nov. 25, 2024 to Jan. 16, 2025.
The survey noted that using the modal method, the demand for loans to enterprises did not change in the last quarter of 2024, with 74.1 percent of surveyed banks still maintaining the same lending standards, up from 72.5 percent in the previous SLOS.
Based on the DI method, this showed a net increase in loan demand, driven by “higher customer inventory financing needs, clients' more optimistic economic expectations, and an increase in borrowers' short-term financing needs,” said the BSP.
The modal approach showed that 61.1 percent of banks said they expect the same overall demand for business loans to continue in the first quarter of this year.
The DI results also expected a net rise in loan demand from businesses this quarter because of the increase in credit demand.
Consumer loans or loans to households based on the modal approach showed that 73.7 percent of surveyed banks saw a steady loan demand in the last quarter of 2024, up from 57.1 percent in the previous survey. The DI approach noted a lower net rise in demand for household loans during the quarter.
“The overall increase in household loan demand was mainly due to banks' more attractive financing terms and higher consumption,” said the BSP.
For the first quarter 2025, the survey showed that 60.5 percent of surveyed banks see a steady demand for household credit using the modal method. The DI results indicated an anticipated net increase in household loan demand because of the rising consumption and banks’ more favorable credit terms, said the BSP.