Credit standards of banks easing

Competition in the industry and the access to large amounts of cheap funding have prompted local banks to slowly ease their credit standards for borrowers, a recent Bangko Sentral ng Pilipinas (BSP) study showed.

The BSP’s Senior Loan Officers survey showed that while overall credit standards including collateral, proof of income, and borrowers’ profiles have remained unchanged, several banks have started to relax some requirements to accommodate new clients.

“A minimal net easing of overall credit standards for loans to both enterprises and households relative to the previous quarter was noted,” the BSP said in reporting the survey’s results.

The survey consists of questions on loan officers’ perceptions relating to the overall credit standards of universal and commercial banks. More specifically, the questions center on factors that affect supply and demand for financing by households and businesses.

Survey questions were sent to all commercial banks. Of those surveyed, 33 banks sent back answers, representing a 94.3-percent response rate. The BSP has been conducting its senior loan officers survey since 2009.

For lending to enterprises, the BSP said 86.2 percent of banks indicated that they generally maintained credit standards for businesses.

“However, a few banks eased their credit standards… citing improvements in the profile of borrowers and profitability of banks’ asset portfolio, and an increased deposit base as main factors,” the BSP said.

These results were mirrored in the survey’s section for lending to households. The BSP said 85.7 percent of banks reported that standards were generally unchanged, but many loan officers said they foresee a slight easing in standards.

The BSP said banks reported that many borrowers had improving profiles, reflecting higher income levels as a result of the country’s economic growth. The regulator said banks also cited more aggressive competition in lending and banks’ increased risk tolerance as reasons for the possible easing of standards.

“In particular, banks reported a net reduction in the use of interest rate floors for housing loans,” the BSP said. “[But] some banks indicated unchanged loan maturities for all types of household loans along with unchanged collateral requirements and loan covenants for credit card and auto loans,” the BSP said.

The BSP said the easing of credit standards came amid strong demand for loans from businesses, which usually gives lenders the space to maintain high credit standards.