By Lee C. Chipongian
With stable banking environment supported by positive economic trends, banks have been maintaining the same lending standards since 2009 but with varying results between credit to households and to enterprises, the Bangko Sentral ng Pilipinas (BSP) said Friday.
Based on the BSP’s latest Senior Bank Loan Officers’ Survey (SLOS) which uses two models to assess results, banks have not changed their credit standards to enterprises and households in the first three months of 2017 on the modal approach. In fact, banks have not tweaked lending standards since the second quarter of 2009 when the survey first started.
The second model which was the diffusion index (DI) approach, however showed a net tightening of credit standards for loans to enterprises while households’ lending standards were unchanged. In the last survey (fourth quarter 2016) credit standards for both corporate lending and household loans showed net tightening based on the DI approach, said the BSP.
About 93.3 percent of bank responses indicated that as far as lending to enterprises were concerned, credit standards were broadly unchanged using the modal model. The DI approach, on the other hand, indicated a net tightening of credit standards for business loans mainly because of stricter financial system regulations, less favorable economic outlook, and reduced tolerance for risk.
“(The) DI-based results indicated stricter loan covenants as well as increased use of interest rate floors despite narrower loan margins, increased credit line sizes, longer loan maturities, and unchanged collateral requirements,” the BSP explained.
In terms of borrower firm size, banks’ responses showed net tighter overall credit standards across firm sizes, except those for micro enterprises which showed net easing based on the DI approach, the BSP added. “Results based on the modal approach showed that most of the respondent banks anticipate unchanged credit standards over the next quarter.
Meanwhile, the DI approach showed that some respondent banks expect credit standards to tighten over the next quarter largely on account of banks’ expectations of stricter financial system regulations and lower tolerance for risk.”
Households’ credit standards – using both the modal and DI models — showed that 100 percent of banks surveyed did not change their overall credit standards mainly because of banks’ sustained tolerance for risk, steady profile of borrowers, and a stable economic outlook.
“In particular, banks’ responses indicated unchanged overall credit standards for housing and personal/salary loans during the quarter,” noted the BSP. “(The) overall credit standards for credit card loans and auto loans showed net tightening based on the DI approach. In terms of specific credit standards, results based on the DI approach indicated unchanged loan margins, collateral requirements, loan covenants, and loan maturities for loans extended to households.”
The BSP’s SLOS helps the Monetary Board and central bank officials in assessing and monitoring banks’ lending behavior, specifically the credit activity in the banking system.
“(The) BSP assess the robustness of demand conditions as well as conditions in asset markets, and the strength of bank lending as a transmission channel of monetary policy,” it said.
The first quarter SLOS covered 35 big banks and 31 of these banks have a response rate of 88.6 percent.