Banks maintain loan credit standards
Most Philippine banks maintained their credit standards for loans to enterprises and households during the last quarter of 2016, a survey conducted by the Bangko Sentral ng Pilipinas (BSP) showed.
The BSP’s Senior Bank Loan Officers’ Survey (SLOS) during the period showed this is the 31st consecutive quarter that majority of local banks reported unchanged credit standards since the second quarter of 2009.
The BSP came up with this result through the modal approach, which looks at the option with the highest share of responses.
On the other hand, using the diffusion index (DI) approach showed a net tightening of credit standards for loans to enterprises and households.
This means that the proportion of banks that have tightened their credit standards exceeds those who eased theirs.
Results of the SLOS showed that the bulk, or 90 percent, of the respondents said credit standards imposed on firms remained unchanged, which translated to a steady credit standard based on the modal approach.
Seven percent of the respondents said their standards have been tightened, as compared to three percent who eased theirs. This indicated a net tightening based on the DI approach.
Banks who have tightened their standards attributed it to their less favorable economic outlook, deteriorating profitability and perceived stricter financial system regulations.
These banks are now implementing stricter collateral requirements and loan covenants, and increased use of interest rate floors, increased credit line sizes and longer loan maturities.
Majority of the banks also reported that they have maintained their standards for household loans, while the remaining five percent indicated a more tightened standard for households.
“The tighter credit standards were attributed by respondent banks largely to their reduced risk tolerance and deterioration in borrowers’ profile,” the BSP said.
Ninety percent of the banks indicated that they have maintained their credit standards for commercial real estate loans during the period, while 94.1 percent said they did not change their standards for housing loans to individuals.
However, respondents who claimed that they have tightened their credit standards for commercial and household real estate loans outnumbered those who eased theirs.
Most banks also anticipate steady credit standards for loans extended to enterprises and households in the following quarter this 2017, while some banks expect a tightening due to their unfavorable economic outlook and lower tolerance for risk, among others.