BANKS RELAXED LENDING RULES IN Q4

BANKS relaxed lending to companies and households in the fourth quarter of 2017, the Bangko Sentral ng Pilipinas (BSP) reported on Friday.

Based on the central bank’s Fourth Quarter 2017 Senior Bank Loan Officers Survey ( SLOS), credit standards, as measured using the diffusion index ( DI) approach, showed a net easing for loans sought by enterprises and households.

A negative DI —- 3.7 percent in the quarter— showed that more banks relaxed their lending rules, compared to those that did otherwise.

“Results based on the DI approach indicated a net easing of credit standards for business loans, attributed to banks’ portfolios, a more favorable outlook on the economy, and banks’ increased tolerance for risk, among others,” the survey said.

In terms of specific credit standards, the net easing was reflected in the banks’ increased credit line size, less strict collateral requirements, and longer loan maturities.

In terms of borrower size, the banks’ responses indicated a net easing of overall credit standards for loans to microenterprises, while those for top corporations, large middle- market enterprises, and small and medium firms were unchanged.

More banks expect overall credit standards for business loans to tighten over the next quarter, largely on account of their perception of stricter financial system regulations.

Household loans

Overall credit standards for household loans, meanwhile, also eased.

“In particular, credit standards for credit card and auto loans eased, which was attributed by banks to the improvement in the profitability of their portfolio, their increased tolerance for risk, and improvement in the profile of their household borrowers,” the Bangko Sentral said.

On specific credit standards, results indicated an overall increase in the sizes of credit lines and less strict collateral requirements and loan covenants.

An overall net tightening is expected over the next quarter, particularly on credit card and personal/ salary loans, on the back of banks’ perception of stricter financial system regulations and reduced tolerance for risk.

The SLOS helps the BSP enhance its understanding of banks’ lending behavior, an important indicator of the strength of credit activity in the country.

It also helps assess demand conditions, potential risks in asset markets, and possible strains in bank lending as a transmission channel of monetary policy. MAYVELIN U. CARABALLO