Firms may find it harder to get bank loans this quarter

Banks are expected to tighten their lending standards toward corporate borrowers for the last quarter of the year due to worries about the prospects of the economy in the ongoing pandemic as well as the ability of borrowers to repay their loans, according to the central bank.

In a statement, the Bangko Sentral ng Pilipinas (BSP) said its latest senior bank loan officers’ survey conducted toward the end of the previous quarter showed that lenders were expecting to assume a more conservative stance during the October to December period.

“While majority of the respondent banks generally anticipate unchanged overall credit standards for loans to businesses, diffusion index-based results pointed to expectations of net tighter standards given the following factors: an uncertain economic outlook, a deterioration of borrowers’ profiles and in the liquidity of banks’ portfolio and banks’ decreased tolerance for risk,” the central bank said.

The opposite was true, however, when it came to loans to households which bankers said would likely see more relaxed standards this quarter.

“Diffusion index-based results indicated that respondent banks anticipate further net easing of overall credit standards for household loans, influenced by the expected improvements in borrowers’ profiles and positive economic prospects,” the central bank 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.

Steady loan demand

In the latest survey round, questions were sent to 64 banks—42 universal and commercial banks and 22 thrift banks—51 of which sent in their responses, representing a response rate of 79.7 percent.

The inputs for the latest survey were gathered between Sept. 1 to Oct. 4, or amid the government’s reimposition of quarantine measures to address the outspread of COVID-19 infection rates.

In terms of loan demand, the central bank said majority of respondent banks anticipated generally steady loan demand from firms and consumers, signaling the improvement in market sentiment brought about by the continued rollout of COVID-19 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.