Banks ease credit standards for firms, tighten for households


Banks loosened their overall credit standards for enterprises but tightened lending rules for household loans during the first quarter, based on the diffusion index (DI) approach as contained in the First Quarter 2014 Senior Bank Loan Officers Survey.

The survey said that credit standards for loans to enterprises showed a net easing, with the DI recorded at minus 3.7 percent, compared with the previous quarter.

“Banks that indicated an easing of overall credit standards pointed to a more favorable outlook on the domestic economy and certain industries, which include manufacturing, real estate, renting and business services, and wholesale and retail trade,” it said.

In the DI approach, a positive DI for credit standards indicates that the proportion of banks that have tightened their credit standards are greater compared to those that eased (“net tightening”), whereas a negative DI indicates that more banks have eased their credit standards compared to those that tightened (“net easing”).

The SLOS also revealed that respondent banks cited the improved profitability of their asset portfolios and increased tolerance for risk as key reasons for easing their credit standards.

“In particular, banks’ responses indicated increased credit line sizes, longer loan maturities (except for micro enterprises), and reduced use of interest rate floors (except for micro enterprises),” it added.

In terms of household lending, the DI approach was recorded at 10 percent from 4.8 percent, indicating a net tightening of banks’ overall credit standards for household loans.

The BSP survey said that the tightened credit standards for households were due to banks’ reduced tolerance for risk and stricter financial system regulations.

“In particular, banks’ responses indicated stricter collateral requirements for housing loans and reduced credit line sizes for auto loans,” it added.

BSP Assistant Governor for the Monetary Policy Sub-sector Cyd Tuano-Amador said that the survey indicates that banks are more disciplined, and more circumspect given the growing consumer demand for loans.

“Lending obviously is growing quite at a heavy pace, at quite a fast clip. Although we characterize lending as financial deepening . . . Something that is really meant to lubricate the growth needs of the economy,” she said.

Amador added that the banking system is expected to be more responsive to not only to the demand for credit but also to the quality of lending that they are making.

Meanwhile, Nicholas Antonio Mapa, associate economist at the Bank of the Philippine
Islands, said that while banks tend to lend more to the corporate sector, they continue to be careful on how they dispense credit to the household sector, in particular, in lending for loans in real estate and motor vehicles.

“These are two sectors that have been growing rapidly in the past two years and banks may be more circumspect in how they allocate credit to these high growth sectors,” he said.


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