Banks tightening on household loans

Local banks became more cautious in granting consumer loans during the first quarter amid a general increase in risk aversion in the local financial system, the latest survey of the central bank showed.

In a statement, the Bangko Sentral ng Pilipinas said that lending to households reflected a “net tightening” in the first three months of the year based on one survey method, reflecting the imposition of higher credit standards.

“In particular, credit standards for housing loans and personal or salary loans tightened due mainly to respondent banks reduced tolerance for risk,” the central bank said, citing the results of its quarterly survey on banks’ senior loan officers.

In terms of specific credit standards, the overall net tightening of credit standards for household loans was reflected in the stricter loan covenants for housing loans and shorter loan maturities for personal or salary loans, it explained.

Most banks indicated that credit standards for loans to enterprises were maintained during the quarter using the modal approach. The unchanged credit standards for business loans was largely attributed to the banks’ steady outlook for the economy as a whole and for major industries, as well as their unchanged tolerance for risk and stable profile of borrowers.

Responses to the survey on loan demand indicated that the majority of the respondent banks continued to see stable overall demand for loans from both enterprises and households, while a second method revealed a net increase in loan demand across all firm sizes and all types of household loans.

“The net increase in loan demand for firms was attributed by banks to their customers’ higher working capital requirements and banks’ attractive financing terms, among others,” the BSP said. “Meanwhile, respondent banks attributed the net increase in loan demand from households to low interest rates, more attractive financing terms offered by banks, and increased household consumption.”

Overall, however, the results of the Senior Bank Loan Officers’ Survey for the first quarter showed that most banks continued to maintain their credit standards for loans.