Banks steady credit standards in Q4 2022
BANKS have successfully stabilized their credit standards for the fourth quarter of 2022, the Bangko Sentral ng Pilipinas (BSP) said on Friday.
Results have shown, through the Senior Bank Loan Officers’ Survey, that a greater proportion of bank respondents maintained their overall credit requirements in terms of lending to enterprises and households.
A higher majority of surveyed banks had unchanged lending standards for business loans, as per the modal-based results for the fourth quarter of 2022.
According to bank participants, the general tightening of lending requirements was primarily attributable to the degradation of borrowers’ profiles and banks’ portfolios, lower risk tolerance, and a more uncertain economic outlook.
“DI (Diffusion index)-based results reflected an anticipation of net tightening credit standards mainly due to banks’ lower tolerance for risk and deterioration in borrowers’ profiles,” The BSP affirmed.
According to the BSP, 71.4 percent of the banks maintained their credit requirements for loans granted to households for the fourth quarter of 2022. Moreover, the diffusion index method has indicated that the unchanged overall lending standards were due to “steady economic outlook, maintained risk tolerance, and unchanged borrowers’ profiles and profitability of banks’ asset portfolios.”
Meanwhile, there was a tightening of credit standards for household loans as seen by wider loan margins, tougher collateral requirements and loan covenants, smaller credit limits, and increasing usage of interest rate ceilings.
These were offset, however, by loosening specific lending rules, notably for credit card loans, as well as extended loan maturities across all forms of household loans.
Moreover, loan demand from both enterprises and consumers indicated substantially stable, based on the survey findings using a modal approach. Meanwhile, DIbased statistics revealed a net rise in overall loan demand across all company classifications and family loan categories.
According to the BSP, the improvement in customers’ economic outlook, as well as an increase in customer inventory and accounts receivable finance needs, drove the overall net increase in demand for business loans.
Similarly, the overall net increase in consumer credit demand was ascribed mostly to increasing household consumption and banks’ more appealing lending conditions.
On the other hand, unchanged overall credit standards for commercial real estate loans (CRELs) and residential real estate loans (RRELs) were recorded with 82.4 percent and 65.6 percent, respectively.
Findings indicated a net tightening of lending requirements for CRELs for the 28th consecutive quarter in the fourth quarter of 2022, owing primarily to decreased risk tolerance, worsening of borrowers’ profiles, and less favorable economic predictions.
Meanwhile, the softening of credit requirements for RRELs was connected with improved portfolio profitability and borrowers’ profiles, as well as increased risk tolerance and a less uncertain economic outlook.
“In Q4 2022, most respondent banks reported broadly steady credit demand for housing loans while anticipating a similar scenario for Q1 2023,” The BSP remarked.