BANKS tightened lending standards for companies and households during the third quarter of 2016 and will to do so in October to December for loans extended to businesses, the Bangko Sentral ng Pilipinas (BSP) reported on Friday.
Based on the central bank’s Third Quarter 2016 Senior Bank Loan Officers Survey (SLOS), credit standards—measured by the diffusion index (DI)—pointed to a tightening on loans south by enterprises and households
A positive DI indicates the proportion of banks that tightened credit standards is greater than those that did otherwise, while a negative count indicates more banks relaxed their rules.
The net tightening of credit standards for firms reflected a deterioration in the profitability of banks’ portfolio, less favorable economic outlook, perceived stricter financial system regulations, reduced tolerance for risk, and deterioration of borrowers’ profiles.
“In terms of specific credit standards, the net tightening in overall credit standards for business loans reflected overall stricter loan covenants and collateral requirements as well as increased use of interest rate floors across all firm sizes, except micro enterprises,” the central bank said.
In terms of borrower size, the banks’ responses showed a net tightening in overall credit standards for loans to top corporations, large middle-market enterprises and small and medium enterprises (SMEs) while a net easing was gleaned for micro enterprises.
In the fourth quarter, the banks expect credit standards to tighten largely on account of less favorable outlook on the economy as well as expectations of deterioration in the profitability of their loan portfolio.
The survey found the overall credit standards for household loans were tightened in the third quarter with banks that tightened credit standards outnumbered those eased.
“The tighter credit standards were largely to their perception of stricter financial regulations. In particular, banks’ responses indicated banks’ wider loan margins for housing loans and auto loans, and tighter collateral requirements for housing loans, auto loans and personal or salary loans,” it said.
For the next quarter, banks expect a net easing of overall credit standards across all types of household loans except auto loans while expecting a higher tolerance for risk, an improvement in borrowers’ profiles, and more aggressive competition from banks and non-bank lenders.
The SLOS was conducted to enhance an understanding of banks’ lending behavior as an important indicator of the strength of credit activity in the country.
The survey also helps assess the demand conditions, potential risks in asset markets, and possible strains in bank lending as a transmission channel of monetary policy.