Banks tighten credit to companies, ease it for households
Photo courtesy of Bangko Sentral ng Pilipinas Facebook Page
MANILA, Philippines—Banks were expected to tighten lending standards for corporate borrowers as 2021 winds down due to worries about economic prospects in the ongoing COVID pandemic and also on borrowers’ ability to repay, according to the central bank.
In a statement, the Bangko Sentral ng Pilipinas (BSP) said its latest survey of senior bank loan officers—conducted toward the end of the previous quarter—showed that lenders were expecting to adopt a more conservative stance from October to December.
The BSP said while majority of respondents expect no changes in overall credit standards for business loans, “diffusion index-based results pointed to expectations of net tighter standards.”
This was due to a number of factors, according to BSP.
Among these were:
- Uncertain economic outlook
- Deterioration of borrowers’ profiles
- Liquidity of bank portfolios
- Decreased tolerance for risks by banks
The opposite was true, however, when it came to loans for households which bankers said would likely see more relaxed standards this quarter.
The BSP said respondents anticipated “further net easing of overall credit standards for household loans.” This was “influenced by the expected movements in borrowers’ profiles and positive economic prospects,” it said.
The survey also helps the BSP 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.
In the latest survey round, questions were sent to 64 banks—42 universal and commercial banks and 22 thrift banks—51 of which sent answers, representing a response rate of 79.7 percent.
Inputs for the latest survey were gathered between Sept. 1 to Oct. 4, 2021 amid the return of lockdowns to address the spike in COVID cases.
In terms of loan demand, the BSP said majority of respondent banks anticipate generally steady loan demand from firms and consumers, signaling the improvement in market sentiment brought about by the continued rollout of COVID vaccines and the gradual easing of quarantine restrictions.
Results from the diffusion index method showed expectations of a net increase in overall loan demand from businesses which were largely attributed to corporate clients’ higher inventory financing requirements and accounts receivable financing needs as well as improvement in customers’ economic outlook.
Likewise, the latter approach pointed to banks’ outlook of a net increase in overall loan demand from consumers driven by higher household consumption, lower income prospects, and banks’ more attractive financing terms.
In the fourth quarter, diffusion index-based results also pointed to a net easing in lending standards for housing loans, driven by the expected improvements in borrowers’ profiles and more favorable economic prospects.
The survey results also showed expectations of a net increase in housing loan demand in the fourth quarter of 2021 in anticipation of banks’ more attractive financing terms, lower interest rates, and consumers’ increasing housing investments.
