Bankers remain cautious in lending

Bankers are expected to tighten loan standards in the current quarter, potentially exacerbating an already worrisome downtrend in overall credit levels that have been on the decline since December, according to the latest central bank survey.

In a statement, the Bangko Sentral ng Pilipinas said its Senior Bank Loan Officers’ Survey conducted in the previous quarter revealed that financial institutions had predicted an imposition of net tighter standards for enterprises seeking to borrow funds from them.

This outlook is set amid “a deterioration of borrowers’ profiles and in the profitability of banks’ portfolio, less favorable economic outlook and banks’ decreased tolerance for risk,” the report said, citing a part of the survey results that used a diffusion index approach.

A parallel modal approach showed that, in terms of outlook for the third quarter, the majority of the respondent banks anticipated steady overall credit standards for lending to businesses.

The survey also showed that, since the previous quarter, banks had begun implementing a net tightening of overall credit standards, evident in terms of reduced credit line sizes, stricter collateral requirements and loan covenants and increased use of interest rate floors. Meanwhile, some form of easing was shown in terms of narrower loan margins and longer loan maturities.

In terms of lending to households, bankers surveyed predicted a net easing of overall credit standards for household loans, citing expected improvement in borrowers’ profiles and positive economic prospects, using the diffusion index approach, while the parallel modal approach showed a retention of existing credit standards.

But similar to enterprise loans, banks had already tightened standards for household loans in previous quarters, reflected in reduced credit line sizes as well as stricter loan covenants and collateral requirements. Some form of easing was shown also in terms of narrower margins and longer loan maturities.

During the latest survey round, questions were sent to 64 banks—42 universal and commercial banks and 22 thrift banks—53 of whom sent in their responses, representing a response rate of 82.8 percent. Respondent banks’ inputs for the survey were gathered from June to July 2021.

In terms of loan demand during the third quarter, most of the respondent banks expect overall loan demand from both businesses and households to be broadly steady signifying improved economic prospects from enterprises and households as vaccination drives speed up.

Diffusion index-based results revealed expectations of a net increase in overall loan demand from firms associated mainly with corporate clients’ higher inventory financing requirements and accounts receivable financing needs along with their improved economic outlook.

Similarly, the latter approach pointed to banks’ prospects of a net increase in overall loan demand from consumers driven largely by higher household consumption and lower income prospects.