Survey: Banks ease credit standards for households

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Bank lending standards remained broadly unchanged during the third quarter but households were granted a bit more leniency, the Bangko Sentral ng Pilipinas (BSP) reported on Friday.

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Based on the BSP’s Third Quarter 2015 Senior Bank Loan Officers Survey (SLOS), credit standards – as measured by the diffusion index (DI) approach –remain broadly unchanged for enterprises, while a slight net easing was observed in credit standards for households.

A positive DI indicates that the proportion of banks that tightened credit standards is greater than those that eased, whereas a negative DI indicates that more banks have relaxed their rules.

For enterprises, the latest survey found that the number of respondent banks reporting tighter credit standards equaled the number of respondent banks reporting easier credit standards.

“Respondent banks attributed their unchanged credit standards to their unchanged tolerance for risk and stable economic outlook,” the BSP said.

For the next quarter, most banks expect credit standards for enterprises to stay unchanged. The number of those that expect a slight easing, however, was higher than those with the opposite view, particularly with regard to top firms and large middle-market enterprises.

“Respondent banks cited expectations of higher risk tolerance, more favorable economic outlook, and improvement in banks’ portfolio as among the reasons behind the expected net easing of credit standards,” the BSP said.

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

“In particular, banks’ responses indicated increased credit line sizes, less strict collateral requirements and loan covenants, and less use of interest rate floors along with unchanged margins on loans and loan maturities,” it said.

Most banks also expect to maintain their overall credit standards during the next quarter.
Some, however, expect a slight easing, particularly for housing and personal/salary loans.

The BSP said this was “due largely to expectations of banks’ increased tolerance for risk, improvements in banks’ portfolio and borrowers’ profile, more aggressive competition from banks and non-bank lenders, and less strict financial system regulations.”

Majority of respondent banks continue to see unchanged overall demand for loans from both enterprises and households.

Business loans, though, could increase given higher inventory and accounts receivable financing needs, along with an improved economic outlook among clients.

For households, demand could rise due to more attractive financing terms and lower interest rates.

Focusing on real estate, the survey found a net tightening of overall credit standards with regard to commercial loans, traced to stricter regulations with regard to bank exposure to the sector.

“In particular, respondent banks reported stricter collateral requirements and loan covenants along with wider loan margins, reduced credit line sizes, shorter loan maturities, and increased use of interest rate floors for commercial real estate loans,” the BSP said.

A slight tightening was also recorded with regard to housing loans, “attributed by respondent banks to deterioration in the profile of borrowers.”

The central bank said the SLOS was conducted 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 asset markets, and possible strains in bank lending as a transmission channel of monetary policy.

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