The latest Bangko Sentral ng Pilipinas (BSP) survey showed that local banks showed divergence in benchmark trends for lending in the second quarter of the year.
Banks generally preferred to lend to consumers more than businesses in the second quarter of the year.
Participants in the BSP Bank Senior Bank Loan Officers Survey (SLOS) indicated various trends, with corporate lending standards generally reflecting a net tightening while a net loosening of credit standards was observed for consumer loans.
Based on the Diffusion Index (DI) approach to the survey, banks demonstrated a net tightening of their overall lending criteria across all sizes of corporate borrowers, specifically large corporations, large mid-market enterprises, SMEs, and micro enterprises.
Respondents from banks reported that the general tightening of credit standards is mainly due to the following factors: the deterioration of the position of borrowers and the profitability of the bank’s portfolio, and the uncertain economic outlook.
In terms of specific credit standards, the net tightening of public lending standards was reflected in stricter collateral requirements and loan covenants, including greater use of minimum interest rates. On the other hand, net loosening of credit standards is observed in terms of narrow loan margins, wider size of credit lines, and longer loan maturities.
This contrasts with consumer lending results, which indicated a net easing in credit criteria for consumer loans. The Savings and Credit Bank said that the responding banks attributed this to the optimistic economic outlook, increased risk tolerance and improved borrowers’ profile.
Under the specific credit criteria, net easing in lending criteria has been reflected in longer loan maturities, narrower loan spreads, and lower use of minimum interest rates. Meanwhile, the net tightening of credit standards has emerged in terms of lower volume of credit lines as well as stricter collateral requirements.
For the next quarter, banks continue to show their expectation of a net tightening in credit standards for corporate loans due to the following reasons: less favorable economic prospects, declining risk tolerance, deteriorating borrowers’ profile, as well as banks’ profitability and liquidity.
On the other hand, bank respondents’ expectations of net easing of consumer aggregate credit standards were also carried over to the next quarter. The survey participants said that this is due to the improvement in the profile of borrowers and the profitability of the banks’ portfolio, the decline in the uncertain economic outlook, and the increase in risk tolerance.