Bangko Sentral ng Pilipinas (BSP) ‘s latest survey of bank loan officers (SLOS) showed a marked tightening of overall bank credit standards for loans to households and businesses.
Third-quarter SLOS results indicate banks continued to be risk-averse in their lending, mainly due to the slow recovery in credit on a weak economic outlook and deteriorating borrower profiles, according to BSP governor Benjamin E. Diokno.
“(The) continued support for monetary policy remains crucial to support private demand and encourage banks to lend and thus allow the economic recovery to gain ground,” Diokno said on Thursday, October 21, during the BSP presentation. of the third quarter inflation report. .
Based on SLOS, which uses two methods to assess performance, the majority of banks surveyed have maintained their overall credit standards using the modal approach. However, based on the Diffusion Index (DI), there is a marked tightening of overall credit standards for loans to businesses and households.
Deputy Director of BSP’s Economic Research Department Lara Romina Ganapin, who presented on SLOS, said that using the modal approach, 70.8% of banks surveyed have overall credit standards unchanged during the quarter .
With the ID-based method, he showed a marked tightening of lending standards in large companies, large mid-market companies, small and medium-sized companies, and micro-enterprises. They point to the deterioration in borrower profiles and the profitability of the banks’ portfolios, as well as a less favorable economic outlook and lower risk tolerance for the bottom line of the tightening.
“On specific credit standards, the net tightening of overall credit standards was evident in terms of downsizing of credit lines, tighter collateral requirements and loan covenants,” BSP said. The increased use of interest rate floors is also a factor. “However, some form of relaxation of lending standards has been identified in terms of longer loan maturities,” he added.
For the next quarter, the BSP said banks “generally anticipate unchanged overall credit standards for business loans.” However, the still uncertain economic outlook, a deterioration in the borrower profile and the liquidity of the banks’ portfolio, as well as a lower risk tolerance of the banks could still lead to a marked tightening of the criteria for granting credit.
When it comes to household loans, around 69.4% of the banks surveyed also said they had unchanged overall credit standards. For the results based on the ID, a net tightening was shown in particular for home, auto and personal loans / wages. For credit card loans, there has been a relaxation of lending standards.
“For specific credit standards, the overall net tightening in household credit standards has manifested itself in reduced size of credit lines, tighter loan clauses and collateral requirements,” BSP said. . He also noted some partial relaxation in lending standards for consumer loans, as evidenced by tighter loan margins and longer loan maturities.
The results of the survey showed that 75 percent of banks reported having stable overall credit standards for commercial real estate loans (CREL), based on the modal approach.
As for the DI-based approach, there was again a net tightening that has been constant over the past 23 quarters, the BSP said. “Banks cited a decrease in risk tolerance, a deterioration in the borrower profile and a more uncertain economic outlook as important factors in the tightening of overall credit standards for CRELs” in the third quarter.
The net tightening of overall lending standards for CRELs has been attributed to wider loan margins, reduced lines of credit, tighter collateral requirements and loan covenants, increased use of rates interest lows and shortened loan maturities, the BSP said.
For household housing loans, the BSP said 71.9% of banks surveyed said they had unchanged lending standards while the DI-based approach noted a net tightening.
Overall, SLOS said loan demand for the third quarter was stable for both businesses and consumers.
“The slight net increase in demand for business loans was driven by increased financing needs for customer inventories and accounts receivable as well as improved economic prospects for customers,” BSP said. Declining household consumption, less attractive financing conditions for banks and higher interest rates were identified as “the main factors influencing the reported decline in aggregate demand for consumer loans”.
For the fourth quarter, the BSP said the majority of banks surveyed expect “generally stable loan demand” from consumers and businesses due to improving market sentiment with the faster rollout. COVID-19 vaccines.
The quarterly analysis used in SLOS, first introduced in 2009, helps the BSP to have “a better understanding of banks’ lending behavior, which is an important indicator of the strength of lending activity in the country. “.
The last SLOS brought together 64 banks, including 42 major lenders and 22 savings banks.
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