PH banks set to tighten lending

Local banks have started to tighten credit standards ahead of the implementation of stricter rules on capital that take effect next year, a survey by the Bangko Sentral ng Pilipinas (BSP) showed.

The Bangko Sentral ng Pilipinas (BSP) this week said while credit standards have been mostly unchanged, more banks admitted that they may become more reluctant to lend to local firms in the coming months.

The BSP said its quarterly Senior Loan Officers survey showed more banks said they would tighten credit standards, citing “the more uncertain economic outlook for the country along with expectations of stricter financial system regulations.”

Starting January 2014, universal and commercial banks will be required to increase their capital buffers for losses.

This is in line with Basel III rules that aim to preserve the health of the banking system in times of crisis.

Under Basel III rules, which will be implemented in the Philippines five years ahead of the international deadline, the minimum 10 percent capital adequacy ratio (CAR) for major banks would be maintained.

However, the tier 1 CAR of banks should be brought up to 8.5 percent. Tier 1 capital is made up mainly of common equity.

Of the major banks surveyed by the BSP, 89.3 percent of banks said their lending standards in the third quarter remained the same as in the second quarter.

However, 3.6 percent of banks said their lending standards for businesses “tightened considerably,” while another 3.6 percent said their standards “tightened somewhat.”

In the second quarter survey, none of the banks covered reported any considerable tightening in their lending standards, while just 3.6 percent of banks said they tightened somewhat.

The effect was more pronounced for loan standards for small and medium enterprises (SME). The BSP said banks asked for more stringent collateral requirements, as well as the increased use of interest-rate floors for loans to the sector.

“Meanwhile, overall credit standards for top corporations were unchanged, following a slight net easing in the previous quarter,” the BSP said.