MANILA – Most banks maintained their credit standards in the fourth quarter of 2023, the Bangko Sentral ng Pilipinas (BSP) said.
Results of the Senior Bank Loan Officers' Survey (SLOS) released on Friday showed that most of the respondent banks kept their credit standards generally unchanged for lending to businesses and consumers based on the modal approach.
The diffusion index (DI) method, on the other hand, showed varied results reflecting a net tightening of credit standards for firms and a net easing of loan standards for households.
The SLOS consists of questions on loan officers’ perceptions relating to the overall credit standards of their respective banks, as well as to factors affecting the supply of and demand for loans to both enterprises and households.
In the modal approach, the results of the survey are analyzed by looking at the option with the highest share of responses. The three options include tightening, easing, or unchanged credit standards for loans to enterprises and for loans to households.
In the DI approach, a positive DI for credit standards indicates that the proportion of respondent banks that have tightened their credit standards exceeds those that eased, whereas a negative DI for credit standards indicates that more respondent banks have eased their credit standards compared to those that tightened.
An unchanged credit standard in the DI approach indicates that the proportion of the respondent banks that have tightened their credit standards is equal to those that eased their credit standards.
Loans to enterprises
The BSP said that in the fourth quarter of 2023, 88 percent of the participant banks maintained credit standards for businesses based on the modal approach.
For the DI approach, survey results showed a net tightening of overall credit standards across all borrower firm sizes due to banks' lower risk tolerance, deterioration of borrowers' profiles and profitability of banks’ portfolios, along with stricter financial system regulations.
"Over the next quarter, both the modal and DI methods indicated respondents' expectations of generally unchanged credit standards for enterprises amid banks' sustained tolerance for risk and stable outlook for the overall economy as well as for industries and firms, along with the steady profiles of borrowers," the BSP said.
Loans to households
SLOS results further showed that about 70.6 percent of surveyed banks retained their lending standards for household loans.
The DI-based results, however, pointed to net easing credit standards for consumer loans mainly due to the improvement in profitability of banks’ portfolios, higher risk tolerance, and less uncertain economic outlook.
In the first quarter of this year, modal results showed a higher number of bank respondents anticipating maintained loan standards for households, while the DI approach indicated a continued net easing of credit standards driven by banks’ expectations of improved profitability of their portfolios, higher risk tolerance, and more favorable economic outlook.
Loan demand
In the fourth quarter of 2023, the majority of surveyed banks pointed to generally steady demand for credit from businesses based on the modal method.
However, the DI approach showed a net increase in loan demand from across all firm classifications driven by bank clients’ more optimistic economic outlook, increased customer inventory financing and accounts receivable needs, including lack of other sources of funds.
In the first quarter of 2024, most banks expect steady loan demand from businesses under the modal approach, while the DI method indicated that participating banks anticipate a net rise in credit demand from businesses driven by customers' more positive economic prospects.
For households, more than half of the surveyed banks indicated generally steady loan demand from consumers in the fourth quarter of 2023 based on the modal approach.
For the DI method, a net increase in consumer loan demand was indicated across all major loan categories due to higher household consumption and banks' more attractive financing terms.
For the first quarter of 2024, about half of the bank respondents expect higher demand for credit from households.
"The DI approach also pointed to a net increase in consumer loan demand driven by expectations of higher household consumption and housing investment, banks’ more attractive financing terms, and lower income prospects," said the BSP. (PNA)
