Banks seen more cautious when lending in Q3

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MANILA  -Banks’ lending standards for businesses are expected to tighten throughout the third quarter of 2023 amid weakening profitability of their portfolios and, at the same time, ease for households largely as financial institutions see increased tolerance for risk in that segment.

Results from the latest quarterly Senior Bank Loan Officers’ Survey conducted by the Bangko Sentral ng Pilipinas (BSP) showed that this was the scenario based on a “diffusion index” (DI) approach on the data collected from 48 universal and commercial banks as well as thrift banks. Data from respondents came in between June 5 and July 12.

‘Net tightening’

A positive DI number 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”).

Results show that banks were anticipating a net tightening of overall loan standards for businesses due to a weakening profitability and liquidity of their loan portfolios, deterioration of borrowers’ profiles and reduced tolerance for risk.

More credit wanted

At the same time, the BSP noted that respondent banks expect a net increase in overall credit demand from enterprises given firms’ increasing inventory and accounts receivables financing requirements, and improvement in customers’ economic outlook.

For households or consumer borrowers, respondents were looking at a net easing in loan standards mainly due to increased risk tolerance and improving profitability of banks’ portfolios for this market segment, as well as more desirable borrowers’ profiles.

Similarly, the BSP found that banks were anticipating a net rise in overall demand for consumer loans, largely due to expectations of higher household consumption and investment on housing. INQ

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