Banks tighten credit standards for firms, households in Q1

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BANKS tightened credit rules for enterprises and household loans during the first quarter of 2015 in line with the country’s stricter financial system regulations, a central bank survey showed.

According to the First Quarter 2015 Senior Bank Loan Officers Survey (SLOS) conducted by the Bangko Sentral ng Pilipinas (BSP), credit standards for loans to enterprises showed a net tightening and were observed across all firms size.

The survey measurements were based on the diffusion index (DI) approach. A positive DI for credit standards indicates that the proportion of banks that have tightened their credit standards is greater than those that eased (“net tightening”), whereas a negative DI indicates that more banks have eased their credit standards than those that tightened (“net easing”).

The DI approach in loans to enterprises was recorded at 13.8 percent from a net easing of negative 3.7 percent a year earlier.


The BSP survey said tighter overall credit standards to firms were attributed by respondent banks to their reduced tolerance for risk as well as perceptions of stricter financial system regulations.

“In terms of specific credit standards, banks’ responses indicated stricter collateral requirements and loan covenants for all types of business loans, except micro enterprises, as well as shorter loan maturities for loans to small and medium enterprises,” it said.

Household lending

In terms of household lending, although the DI approach indicated a net tightening, the data showed that the proportion of banks that have tightened their credit standards is smaller than those that tightened a year ago

The DI for household loans was recorded at 5.3 percent in the first quarter from 10 percent a year earlier.

The BSP survey said that banks’ responses indicated stricter collateral
requirements for all types of loans extended to households and wider loan margins for housing and auto loans.

“Tighter credit standards for household loans have been noted for the sixth consecutive quarter, owing largely to perceived stricter financial system regulations,” it said.

The BSP stressed that it conducts the SLOS to enhance its understanding of banks’ lending behavior, which is an important indicator of the strength of credit activity in the country.

The survey also helps the BSP assess the robustness of demand conditions, potential risks in the asset markets, and possible strains in the bank lending channel as a transmission channel of monetary policy.

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