Banks’ credit standards remain unchanged in Q3
The Bangko Sentral ng Pilipinas (BSP) said banks’ lending standards are still at levels that are both “steady” and “unchanged” since it started its monitoring on these bank loans in mid-2009.
The BSP’s third quarter senior Bank Loan Officers’ Survey (SLOS) – which assesses banks’ credit standards to household, enterprises and real estate loans – indicated that most banks maintained their credit standards for loans to both enterprises and households during the quarter, the 26th consecutive quarter since the second quarter of 2009. The same goes for real estate loans.
The BSP uses two approaches in assessing credit standards. Under diffusion index (DI) approach, the findings show unchanged overall credit standards for loans to enterprises because the number of banks reporting tighter credit standards equaled those that indicated easier credit standards. Using the same approach, the BSP said the DI for loans to households and real estate sector, showed slight net easing of credit standards which meant increased tolerance for risk.
Under the modal approach, results showed unchanged credit standards for all loans.
The central bank said about 87.5 percent of surveyed banks said they did not change the credit standards for loans to enterprises using the modal approach. This is because they basically have unchanged tolerance for risk and stable economic outlook. “In terms of specific credit standards, the results were mixed,” noted the BSP. “On the one hand, banks reported wider loan margins, increased credit line sizes, and longer loan maturities. On the other hand, banks reported stricter collateral requirements and loan covenants as well as increased use of interest rate floors.”
By borrower firm size, overall credit standards for top corporations and micro enterprises showed slight net easing based on the DI approach. However, credit standards for large middle-market enterprises and small and medium enterprises (SMEs) showed a slight net tightening.
Lending to households, in the meantime, showed that 87.5 percent of surveyed banks still had unchanged overall credit standards for these loans. Using the DI approach, there was a slight net easing of credit standards.
The BSP reflected banks’ increased tolerance for risk and improved profile of borrowers. They also observed increased credit line sizes, less strict collateral requirements and loan covenants, and less use of interest rate floors along with unchanged margins on loans and loan maturities.
For commercial real estate loans, the central bank said 86.4 percent of surveyed banks likewise indicated unchanged overall credit standards, based on the modal approach. Using the DI approach, there was a net tightening of overall credit standards for 13 straight quarters.
“The net tightening of overall credit standards for commercial real estate loans was attributed by banks largely to perceived stricter oversight of banks’ real estate exposure,” said the BSP.
Banks reported stricter collateral requirements and loan covenants along with wider loan margins, reduced credit line sizes, shorter loan maturities, and increased use of interest rate floors for commercial real estate loans. “For the next quarter, most of the respondent banks expect to maintain their credit standards for commercial real estate loans. However, banks that anticipate a tightening of their credit standards outnumbered those expecting the opposite,” said the BSP.
The survey included questions relating to loan demand, and for these, banks continued to see unchanged overall demand for loans from both enterprises and households. Using the DI approach, however, the results continued to show a net increase in overall demand for loans from both enterprises and households.
“The net increase in loan demand of firms was attributed by banks to increased inventory and accounts receivable financing needs of borrower firms and clients’ improved economic outlook, among others. (In the meantime) the net increase in overall demand for household loans reflected higher housing investment and household consumption,” explained the BSP.
The BSP reviews the SLOS results to “enhance” its understanding of banks’ lending behavior as an “important indicator of the strength of credit activity in the country.” For the third quarter survey, 34 banks participated which had a response rate of 97.1 percent. (LCC)