Banks seen holding back on lending to companies in Q2

Bank lending standards are expected to tighten in the second quarter of 2022 for businesses but at the same time ease for households, according to the Bangko Sentral ng Pilipinas (BSP).

The BSP’s latest quarterly Senior Bank Loan Officers’ Survey (SLOS) showed that this was the scenario based on a “diffusion index” (DI) approach to the data collected from 54 universal and commercial banks as well as 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”).

A negative DI for credit standards indicates that more respondent banks have eased their credit standards compared to those that tightened (“net easing”).

The mixed results for the second-quarter outlook reflected the scenario that did play out in the first quarter, which the survey also covered.

Responses were gathered from March 1 to April 7, during which the government placed the National Capital Region and 38 other areas elsewhere in the country under alert level 1.

Higher rates

Other factors that likely contributed to the banks’ responses include the ongoing Russia-Ukraine conflict and moves by the US Federal Reserve to raise interest rates.

During the first quarter, the net tightening of overall lending standards was manifested through stricter collateral requirements and loan covenants, reduced size of credit lines, and increased use of interest rate floors.

At the same time, the net easing for credit standards was observed in terms of narrower loan margins and longer loan maturities.

“Over the next [second] quarter, while a larger number of respondent banks anticipate maintained overall credit standards for business loans, the DI-based approach continue to show expectations of net tightening loan standards given increased uncertainty in economic growth outlook, reduced risk tolerance and a deterioration in borrower’s profile and bank’s portfolio,” the BSP said.

Improving profile

“Similar with the previous survey results, the DI-based approach pointed to bank respondents’ anticipation of net easing overall lending standards for households given the improvement in borrower’s profile, less uncertain economic outlook, and increased tolerance for risk,” the regulator added.

In terms of demand for loans in April to June, banks expect an increase for both segments as businesses rev up activities and as households spend more.

An expected increase in demand for credit among firms was largely attributed to improvement in customers’ economic outlook and increased inventory and financing needs for accounts receivable.

Also, households might seek more loans as banks offer more attractive financing terms and lower interest rates, and amid higher investment in housing.