Banks seen getting more selective

Tougher on business, more liberal on retail borrowers

Banks are likely to be more selective when granting loans to companies, but also more liberal when lending to households in the third quarter, amid expectations of continued strong demand for credit, the central bank said over the weekend.

According to the Bangko Sentral ng Pilipinas, its latest survey of senior loan officers of locally-based banks showed a “net tightening” of credit standards for business borrowers according to the diffusion index method used to assess the data.

This was “largely on account of banks’ perception of stricter financial system regulations and expectations of a decline in deposit base of banks and deterioration of the profile of their corporate borrowers,” the BSP said in a statement.

When it comes to smaller loan amounts for households, however, bank officers surveyed by the BSP, the diffusion indexbased results pointed to expectations of a slight net easing of credit standards for household loans as banks anticipate an improvement in the profitability and liquidity of their portfolio.

The BSP said that for the third quarter of 2018, a larger proportion of respondents expect overall demand for corporate and household loans to increase relative to those who indicated the opposite.

“Respondent banks cited expectations of higher investment in plant or equipment and increased working capital needs as the key factors behind the expected increase in demand for business loans,” the central bank said.

It added that the anticipated net increase in household loan demand was attributed by respondent banks to low interest rates and higher household consumption.

The BSP survey also revealed that loans to the real estate sector—one of the most active users of credit in the economy —were expected to remain robust in the current quarter.

“Results based on both the modal and diffusion index approaches likewise showed that respondent banks foresee unchanged overall credit standards for housing loans on the back of their unchanged tolerance for risk, steady profile of housing loan borrowers and respondent banks’ stable economic outlook,” the BSP said.

“Most banks reported unchanged housing loan demand in the second quarter but pointed to a net increase in demand for housing loans,” it said. “Banks’ responses likewise indicated expectations of sustained net increase in demand for housing loans over the third quarter.”

The BSP survey is similar to those conducted by other central banks like the US Federal Reserve, the European Central Bank, the Bank of England, the Bank of Canada and the Bank of Japan. Thirty-five out of the total 43 universal and commercial banks as of June 2018 are currently included in the survey.

As of end-May 2018, the loans of these large banks accounted for about 88.6 percent of the banking system’s gross total outstanding loans.