The lending standards of banks in the Philippines are expected to tighten for businesses and at the same time ease for households in the third quarter of 2022 just as they did in the second quarter, according to the Bangko Sentral ng Pilipinas (BSP).
The BSP’s latest quarterly Senior Bank Loan Officers’ Survey (SLOS), covering the second quarter, showed that this was the scenario based on a “diffusion index” (DI) approach on the data collected from 40 universal and commercial banks as well as thrift banks.
Data from respondents came in between June 16 and July 15. But the majority of the banks who submitted answers did so before the 0.75-percentage-point policy rate hike that the BSP announced on July 14.
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”).
Meanwhile, a negative DI for credit standards indicates that more respondent banks have eased their credit standards compared to those that tightened (“net easing”).
The DI approach showed a net tightening of overall lending standards across all borrower firm sizes.
Bank respondents said this was mainly due to the deterioration of borrowers’ profile and of the profitability of banks’ portfolio as well as “a more uncertain economic outlook.”
The tightening was reflected in stricter collateral requirements and loan covenants, including increased use of interest rate floors.
Results also showed that banks were anticipating a net tightening in credit standards in the next three months given the less favorable economic prospects, decline in risk tolerance, and deterioration of borrowers’ profile as well as banks’ profitability and liquidity.