Consumer credit eases; loans to firms tighten

Bank lending standards in the fourth quarter of 2021 showed an overall easing for households and tightening for enterprises compared to the previous quarter, a scenario, which the Bangko Sentral ng Pilipinas (BSP) thinks will continue to play out during this first quarter of 2022.

Results of the BSP’s latest quarterly Senior Bank Loan Officers’ Survey showed that this was found to be so based on a “diffusion index (DI)” approach on the data collected from 42 universal and commercial banks and 22 thrift banks.

In the DI approach, a positive DI for credit standards indicates that the proportion of respondent banks that have tightened their credit standards exceeds those that eased (“net tightening”), whereas a negative DI for credit standards indicates that more respondent banks have eased their credit standards compared to those that tightened (“net easing”).

On the net easing of standards for households that was observed in the last three months of 2021, the BSP said survey respondents linked this to a more favorable economic outlook and an improvement in borrower’s profile.

“In terms of specific credit standards, the overall net easing of lending standards to consumers was identified in longer loan maturities and decreased use of interest rate floors,” the BSP said.

Easing to continue

“For the following quarter [first quarter of 2022], DI-based results showed that respondent banks anticipate the continued net easing of overall credit standards for consumer loans amid optimistic economic prospects and expected improvement in borrower’s profile,” the BSP said.

As for lending to enterprises, the survey showed a net tightening of credit standards across all borrower firm sizes — from giant businesses to micro enterprises.

The net tightening of overall credit standards for firms showed in terms of stricter collateral requirements and loan covenants as well as increased use of interest rate floors.

“Over the next quarter [January to March], while most of the respondent banks expect generally unchanged overall credit standards for loans to firms, DI-based results showed anticipation of net tighter standards mainly due to less favorable economic outlook and deterioration of borrower’s profile,” the BSP said.