Pandemic pushes banks to tighten lending standards

Tighter credit standards are being implemented by banks in the final quarter of the year due to the economic fallout from the coronavirus pandemic amid rising demand for loans from companies and less demand from retail borrowers.

According to the latest survey of the Bangko Sentral ng Pilipinas, these stricter lending policies were put in place by increasingly conservative lenders since the beginning of the COVID-19 public health crisis earlier this year.

The central bank’s quarterly survey of senior loan officers showed that, during the fourth quarter, some respondent banks have imposed tighter credit standards on the back of increased economic uncertainty along with an expected decline in borrowers’ standing and profitability of banks’ portfolios, including banks’ reduced tolerance for risk.

Household loans are also feeling the pinch of more cautious lenders during this period, according to the survey.

In terms of respondent banks’ outlook for the fourth quarter, results based on both the modal and diffusion index approaches pointed to “tighter overall credit standards for household loans driven by uncertain economic outlook, expected deterioration in borrowers’ profile and lower risk tolerance of banks,” the central bank said.

Meanwhile, most of the respondent banks see strong overall loan demand from both enterprises and households in the fourth quarter, reflecting improved sentiments following the partial reopening of the economy.

“Results based on the diffusion index approach suggested expectations of a net increase in overall demand for business loans, associated largely with corporate clients’ higher working capital requirements, a rise in customer inventory financing needs, a decline in clients’ internally generated funds and lack of other sources of funds,” the central bank said.

Diffusion index-based results for loans extended to households, meanwhile, showed expectations of a net decline in overall demand, including housing, auto and personal or salary loans.

“The expected net decrease in demand for housing, auto and personal or salary loans was attributed by respondent banks largely to lower household consumption and housing investment,” the BSP said.

The survey also noted that banks were implementing tighter credit standards for commercial real estate loans in the fourth quarter of 2020.

“An equal number of respondent banks anticipate both a generally steady loan demand and a decline in demand for real estate loans,” the central bank said. “However, diffusion index-based results pointed to expectations of a net decrease in demand for [real estate loans] largely driven by an anticipated deterioration in customers’ economic outlook.”

For the fourth quarter, majority of the respondent banks are implementing tighter overall credit standards for housing loans largely due to increased economic uncertainty, deterioration in borrowers’ profile and lower risk tolerance of banks, the survey said.

Meanwhile, the diffusion index-based results indicated reduced demand for housing loans on sustained expectations of lower housing investment and household consumption. INQ