MANILA – Most banks maintained their credit standards in the first quarter of the year, 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, reflected a net tightening of lending standards for loans to businesses and an unchanged credit standards for loans to 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 first quarter, 86.3 percent of respondents retained loan standards for firms based on the modal approach.
The DI approach, however, indicated a net tightening of lending standards across all borrower firm sizes due to a deterioration of borrowers' profiles and profitability of bank portfolios and banks’ lower risk tolerance.
For the next quarter, the modal approach showed participant banks' anticipation of steady lending standards for enterprises.
Meanwhile, the DI method pointed to expectations of tightening loan standards given the deterioration in the profitability and liquidity of banks’ portfolios and borrowers' profiles.
Loans to househeolds
In the first quarter of the year, both the modal and DI methods revealed that surveyed banks maintained lending standards to household loans due to banks’ unchanged risk tolerance, steady profitability of banks’ asset portfolios, as well as stable economic outlook and profile of borrowers.
In the next quarter, modal results showed a higher number of bank respondents anticipating maintained loan standards for households.
The approach, on the other hand, indicated a net tightening of credit standards largely due to banks’ expectations of a deterioration in the profitability of their portfolios and on borrowers' profiles as well as banks’ reduced tolerance for risk.
Loan demand
The BSP said 70.6 percent of surveyed banks pointed to a steady overall demand for business loans based on the modal method, while the DI approach showed a net increase in loan demand from across all firm classifications driven by banks' more attractive financing terms, bank customers’ lack of alternative sources of funds, and improvement in clients' economic expectations, among others.
For the next quarter, most of the participating banks anticipate broadly steady business loan demand.
The DI method indicated that participating banks expect a net increase in credit demand from businesses as firms finance their accounts receivable and operational requirements, such as increasing inventory levels to meet expected demand amid a more optimistic economic outlook.
For households, modal results showed that 68.6 percent of surveyed banks indicated a steady loan demand, while the DI method showed a net increase in demand from all key household loan categories driven by increasing consumption and banks’ more attractive financing terms.
"For Q2 (second quarter) 2024, modal results indicated that most respondent banks expect basically unchanged credit demand from households. Meanwhile, the DI method showed an anticipated net increase in consumer loan demand due mainly to higher household consumption and banks’ favorable financing terms," the BSP said. (PNA)
