As uncertainty grows, PH banks may tighten credit standards

Banks expect to tighten their credit standards over the short term —despite the central bank’s drive to push interest rates lower—as the economic environment grows uncertain due to the coronavirus pandemic, according to the regulator’s latest survey of financial institutions.

In a statement, the Bangko Sentral ng Pilipinas (BSP) said survey results based on the diffusion index approach indicated expectations of net tightening of credit standards “due largely to respondent banks’ less favorable economic outlook, expected deterioration in borrowers’ profiles as well as in the profitability and liquidity of banks’ portfolios and lower tolerance for risk.”

In terms of consumer loans, the central bank said diffusion index-based results indicated expectations of net tighter credit standards for household loans “due largely to respondent banks’ expectations of uncertain economic outlook, deterioration in profitability of banks’ portfolios, and a reduced tolerance for risk.”

The BSP has been conducting the Senior Bank Loan Officers’ Survey since 2009 to gain a better understanding of banks’ lending behavior, which is an important indicator of the strength of credit activity in the country. It helps regulators assess the robustness of credit demand, prevailing conditions in asset markets and the overall strength of bank lending as a transmission channel of monetary policy. INQ