Banks tighten lending standards

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Banks tightened their lending standards for firms during the first quarter of 2016, showing a reduced tolerance for risk, the Bangko Sentral ng Pilipinas (BSP) reported on Friday.

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Based on the central bank’s First 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’ reduced tolerance for risk, perception of stricter financial system regulations, and more uncertain outlook on certain industries and firms.

“In terms of specific credit standards, the net tightening of overall credit standards for business loans reflected stricter collateral requirements and loans covenants,” the central bank said.

For the next quarter, the survey said more respondents expect overall demand for corporate loans to increase further than those who indicated the opposite.

“Respondent banks cited the improved economic outlook of clients, along with expectations of higher working capital and accounts receivable financing needs of borrower firms as the key factors behind the expected increase in demand for business loans,” it said.

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.

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