Credit standards eased for firms, households


Bank eased lending standards for firms and households during the fourth quarter of 2015 given an increased tolerance for risk, the Bangko Sentral ng Pilipinas (BSP) reported on Friday.

Based on the central bank’s Fourth Quarter 2015 Senior Bank Loan Officers Survey (SLOS), credit standards—as measured by the diffusion index (DI) approach —pointed to a slight net easing for loans sought by both enterprises and households.

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.

For enterprises, the survey found that the slight net easing of credit standards reflected respondent banks’ increased tolerance for risk as well as an improved outlook on certain industries.

“In terms of specific credit standards, respondent banks reported narrower loan margins, increased credit line sizes, and longer loan maturities,” the central bank said.

For the next quarter, most banks expect unchanged credit standards, particularly for large middle-market enterprises and small and medium enterprises.

“Respondent banks cited their stable economic outlook and unchanged tolerance for risk as among the key reasons behind the expected unchanged credit standards” the central bank said.

In terms of household lending, the survey said respondent banks’ also reported a slight net easing of their credit standards, “largely to banks’ increased tolerance for risk and improved profile of borrowers.”

“In particular, banks’ responses indicated overall increased credit line sizes and less strict loan covenants for loans extended to households” the central bank said.

Most of the respondent banks expect to maintain overall credit standards over the next quarter. Some expect a slight easing, particularly for housing and auto loans.

The survey also showed a net increase in overall loan demand from both enterprises and households. Business loans could increase given increased accounts receivable, the financing needs of borrower firms and clients’ improved economic outlook.

For households, demand could rise due to higher consumption and banks’ more attractive financing terms.

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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