Banks tightened their lending standards for firms during the second quarter of 2016 but maintained their rules for household loans, the Bangko Sentral ng Pilipinas (BSP) reported on Friday.
Based on the central bank’s Second Quarter 2016 Senior Bank Loan Officers Survey (SLOS), credit standards—as measured by the diffusion index (DI) approach—pointed to a slight net tightening for loans sought by enterprises.
A positive DI indicates that the proportion of banks that tightened credit standards is greater than those that did otherwise, whereas a negative DI indicates more banks relaxed their rules.
The survey found that the net tightening of credit standards for firms reflected respondent banks’ perceived stricter financial system regulations, their reduced tolerance for risk, less favorable outlook on certain industries or firms, and deterioration of banks’ portfolio.
“In terms of specific credit standards, the net tightening of overall credit standards for business loans reflected stricter loan covenants and increased use of interest rate floors,” the central bank said.
For the next quarter, the survey said respondent banks anticipate unchanged credit standards largely on account of banks’ stable outlook on the economy as well as on certain industries or firms, along with their expectations of an unchanged tolerance for risk.
The survey also found that overall credit standards for household loans remained unchanged in the second quarter as banks that reported overall easing of credit standards equaled those that reported tighter credit standards during the quarter.
“The steady credit standards were attributed by respondent banks largely to their unchanged risk tolerance and profile of borrowers, stable economic outlook of respondent banks and unchanged degree of competition from banks and non-bank lenders,” it said.
In particular, banks’ responses indicated unchanged loan maturities across all types of household loans, except housing loans, and steady use of interest rate floors for auto loans.
For the next quarter, results showed expectations of unchanged overall credit standards, particularly for housing and credit card loans, reflecting banks’ steady economic outlook and unchanged tolerance for risk.
The central bank said it conducted 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 assess the robustness of demand conditions, potential risks in asset markets, and possible strains in bank lending as a transmission channel of monetary policy.