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Loan standards for firms, consumers steady in Q2

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BANKS’ CREDIT STANDARDS were broadly steady in the second quarter, which could be kept for businesses but eased for consumers in the coming months, a Bangko Sentral ng Pilipinas (BSP) survey showed.

The BSP’s latest Senior Bank Loan Officers’ Survey published on Thursday showed most respondent lenders maintained their lending standards for both enterprises and households in the April to June period, based on the modal approach.

However, based on the diffusion index (DI) approach, there was a net tightening of credit standards for firms while there was a net easing observed for consumer loans.

A total of 49 banks responded to the survey out of the 64 lenders tapped to participate, representing a response rate of 76.6%. Answers were gathered from June 16 to July 15.

The BSP said modal-based results showed 76.1% of respondents indicated generally unchanged overall standards for business loans, while the DI approach showed a net tightening of lending standards across all sizes of firms due to the deterioration of borrowers’ profile and banks’ profitability, as well as a more uncertain economic outlook.

“The net tightening of general lending standards was reflected in stricter collateral requirements and loan covenants, including increased use of interest rate floors,” the central bank said.

“On the other hand, net easing of credit standards was observed in terms of narrower loan margins, wider size of credit lines, and longer loan maturities,” it added.

Meanwhile, for households, the survey’s results showed 73% of participants kept their lending standards steady, based on the modal approach. However, the DI method showed a net easing in credit standards for consumer loans, which respondents attributed to an optimistic economic outlook, increased risk tolerance, and improvement in borrowers’ profile.

The central bank said the net easing in credit standards was reflected in longer loan maturities and narrower margins, as well as the decreased use of interest rate floors. Meanwhile, net tightening was shown in the decreased size of credit lines, as well as stricter collateral requirements.

Based on the modal approach, loan demand from both firms and consumers was generally steady in the second quarter, while the DI method showed net increases in demand for both business and consumer credit, particularly housing, credit card and auto loans, amid improved confidence.

“The reported net rise in demand for business loans was ascribed to increased customer inventory and accounts receivable financing needs, and improvement in customers’ economic outlook. Similarly, the net increase in demand for household credit was mainly linked to higher household consumption and banks’ more attractive financing terms,” the BSP said.

OUTLOOKFor this quarter, majority of the respondent banks expect to retain their overall credit standards for both enterprises and households, based on the modal approach.

However, the DI approach showed lenders expect to continue tightening credit standards for firms due to less favorable economic prospects, a decline in risk tolerance, and the deterioration of lenders’ profile as well as banks’ profitability and liquidity.  

As for household loans, the DI method showed expectations of a net easing in credit standards this quarter amid an improvement in borrowers’ profile and bank profitability, a less uncertain economic outlook, and increased tolerance for risk.

Meanwhile, demand for both business and consumer loans is expected to remain unchanged this quarter, based on the modal approach, while the DI method showed banks anticipate a net increase in credit demand for both sectors amid an improved economic outlook, rising financing needs, expectations of an uptick in consumption and housing investments, lower interest rates, and more attractive loan terms.

REAL ESTATEMeanwhile, the survey also showed that 73.3% of the respondent banks maintained their overall credit standards for commercial real estate loans in the second quarter, based on the modal approach.

However, the DI method showed a net tightening of loan standards for commercial real estate loans for the 26th consecutive quarter due to banks’ decreased risk tolerance and the deterioration of borrowers’ profile.

Most respondent banks also reported generally unchanged demand for commercial real estate loans, based on the modal approach, while the DI-based results showed a net rise in credit demand amid improved economic prospects and firms’ increased need for managing inventory and accounts receivables.

For this quarter, the modal approach showed banks expect to keep their real estate credit standards for businesses steady, while the DI method showed expectations of net tighter standards.

Modal-based results also showed expectations of unchanged demand for commercial real estate loans this quarter, while the DI approach indicated that respondents expect a net increase in demand amid a positive economic outlook, more attractive financing terms and increased funding requirements.

As for households, 71.9% of respondent banks indicated unchanged lending standards, based on the modal approach, while the DI method showed a net easing for standards for residential real estate loans, attributed to a better economic outlook and increased risk tolerance.

“For the [third] quarter, a larger share of respondent banks anticipate credit standards for housing loans to be maintained, while DI-based results indicate a net easing of housing loan standards,” the BSP said.

Demand for housing loans was also broadly steady in the April-June period, based on the modal approach, which is expected to be sustained this quarter. Meanwhile, the DI method’s results showed a net increase in demand for residential real estate credit for the second and third quarters amid lower interest rates, improved household consumption and higher investment in housing. — KBT