Banks growing wary of household loans, BSP survey shows

Bankers expect demand for credit from both Filipino businesses and households to rise in the final quarter of the year, but also see a tightening of lending standards for the latter amid a growing intolerance for risk among local financial institutions.

Thus revealed the latest survey of the Bangko Sentral ng Pilipinas conducted every quarter among senior loan officers of the country’s largest financial institutions, which also showed that rising demand for real estate loans across the market during the October to December 2019 period, accompanied by a similar decline in risk tolerance for household borrowers.

In a statement, the central bank said that commercial loan officers expect credit stands in the fourth quarter of 2019 to remain unchanged using both the modal and diffusion index survey methods which showed bankers divided evenly on the issue of tightening or easing of overall credit standards for business loans.

“The respondent banks attributed their anticipation of unchanged overall credit standards to their stable economic outlook and expectations of no changes in terms of tolerance for risk, among other factors,” the regulator said.

In terms of households, however, the diffusion index-based results “indicated expectations of overall net tightening of credit standards for household loans as respondent banks anticipate a deterioration in profitability of banks’ portfolios and a lower tolerance for risk.”

Over the next quarter, diffusion index-based survey results suggested expectations of a net increase in overall loan demand for both business and household loans.

“For business loans, the expected net increase in demand was associated largely with corporate clients’ higher working capital requirements,” the central bank said. “Meanwhile, the anticipated net increase in loan demand from households was attributed to expectations of higher household consumption, lower interest rates, and more attractive financing terms offered by banks.”

Over the next quarter, although most of the respondent banks anticipated generally steady loan demand, more banks expected demand for commercial real estate loans to increase compared to those expecting the opposite.

“Using the diffusion index approach, the survey results suggested expectations of a net tightening of credit standards for housing loans in the fourth quarter of 2019 as respondent banks anticipate a deterioration in the profitability of banks’ loan portfolio and a decline in risk tolerance,” the BSP said.

The BSP has been conducting the survey since 2009 to gain a better understanding of banks’ lending behavior, which is an important indicator of the strength of credit activity in the country. The survey also helps regulators assess the robustness of credit demand, prevailing conditions in asset markets, and the overall strength of bank lending as a transmission channel of monetary policy.

While the survey covered only universal and commercial banks until the third quarter of 2018, subsequent editions were broader, with the latest one being sent to a total of 66 banks (42 universal and commercial banks and 24 thrift banks), 50 of which sent in their responses, representing a response rate of 75.8 percent.