PH banks still wary about lending to businesses in Q4 2023

MANILA, Philippines  —Banks remained cautious when lending to businesses in the final quarter of 2023 amid weakening financial conditions of some firms, a stark contrast to easing credit standards for households as consumption displayed strength even in the face of rising prices.

Results of a survey of 61 banks showed a “net tightening” of lending standards for enterprises in the fourth quarter based on the diffusion index method, the Bangko Sentral ng Pilipinas (BSP) reported on Friday.

Explaining the survey results, the BSP said banks cautiously extended credit to businesses due to lenders’ lower risk tolerance, as well as “deterioration of borrowers’ profiles and profitability of banks’ portfolios, along with stricter financial system regulations.”

Stricter requirements

A net tightening means the proportion of banks that turned more conservative during the period exceeded those that relaxed their credit standards.

READ: Banks seen more cautious when lending in Q3

Such was the case last quarter for commercial real estate loans that banks extend to businesses that are planning to purchase or develop properties, the BSP reported. Overall, the BSP said lenders had stricter collateral requirements and loan covenants for companies that wanted to borrow money.

Banks also utilized interest rate floors more often when lending money to businesses as protection against risks, the BSP added.

Nevertheless, the central bank said banks saw a “steady demand” for loans from companies last quarter and continue to do so for the first quarter of 2024 due to borrowers’ “more optimistic economic outlook, increased customer inventory financing and accounts receivable needs, including lack of other sources of funds.”

Consumer loans

Meanwhile, banks that eased their lending standards for household loans outnumbered those who turned more cautious in the fourth quarter, resulting in a “net easing” mainly due to “improvement in profitability of banks’ portfolios, higher risk tolerance, and less uncertain economic outlook.”

READ: Bank lending to stay resilient despite high rates

By type of credit, the BSP said the more relaxed lending standards were seen for housing loans. That, in turn, boosted the overall appetite for consumer loans in the fourth quarter, with 50 percent of respondent banks reporting an increase in appetite for loans among households.

Latest data from the BSP showed bank lending grew by 7 percent in November 2023, among the slowest pace seen in two years, as cautious appetite for business loans amid a high interest rate environment tempered the impact of robust household credit expansion.

READ: Modest business appetite curbs PH bank lending growth

At its last meeting for 2023, the powerful Monetary Board kept the BSP’s policy rate unchanged at 6.5 percent, the highest in 16 years, and stressed the need to “keep monetary policy settings sufficiently tight until a sustained downtrend in inflation becomes evident.” INQ