Most Philippine banks maintained their credit standards steady in the third quarter this year, according to the latest Senior Bank Loan Officers’ Survey (SLOS) conducted by the Bangko Sentral ng Pilipinas (BSP).
The BSP said in a statement the survey reflected that a majority of the participating banks maintained their credit standards for loans to firms and households based on the modal approach. Meanwhile, the diffusion index (DI) method indicated mixed results pointing to a net tightening of loan standards to businesses and a net unchanged lending standards for households.
Using the modal approach, the survey results showed most of the surveyed banks (80.9 percent) maintained credit standards for businesses. However, the DI approach indicated a net tightening of overall credit standards across all borrower firm sizes driven by key factors such as lower risk tolerance; deterioration in the profitability of banks’ portfolios; and decline in the quality of borrowers’ profiles.
“For Q4 2023, the modal approach reflected respondents’ anticipations of generally maintained credit standards for firms. Meanwhile the DI method indicated surveyed banks’ outlook of net tightening of lending standards for the next quarter amid expectations of a deterioration in borrowers’ profiles and decline in the profitability of banks’ portfolios along with banks’ reduced tolerance for risk,” it said.
For commercial real estate loans, majority of the respondent banks (84.4 percent) pointed to broadly steady lending standards for commercial real estate loans (CRELs). Meanwhile, DI-based results indicated a net tightening of credit standards for CRELs during the quarter largely due to a decrease in risk tolerance; deterioration of borrowers’ profiles; and less favorable economic outlook.
Over the following quarter, a higher proportion of banks expect to retain their loan standards for CRELS based on the modal approach, while the DI method showed a net tightening of credit standards for CRELs,” the survey said.
Meanwhile, most respondent banks (68.8 percent) maintained their credit standards for loans to households. The DI approach likewise pointed to a net unchanged credit standards for household loans which was attributed by banks to steady economic outlook; sustained profitability of banks’ portfolios; unchanged risk tolerance; and steady profile of borrowers.
Over the following quarter, the modal approach indicated a larger proportion of respondent banks anticipating generally unchanged credit standards for household loans. Meanwhile, the DI approach showed bank respondents’ expectations of a net easing in household credit standards in Q4 2023 mainly due to improvement in the profitability of banks’ portfolios and borrowers’ profiles along with banks’ higher tolerance for risk.
A large majority of respondent banks (72.3 percent) indicated steady overall loan demand from firms in Q3 2023 based on the modal approach. Meanwhile, the DI method continued to show a net increase in credit demand from across all firm classifications, due to customers’ improved economic prospects as well as increased inventory and accounts receivable financing needs.
Over the next quarter, a higher number of bank participants anticipate generally unchanged credit demand from enterprises. On one hand, DI results showed that surveyed banks expect a net increase in overall loan demand from firms in Q4 2023 due to higher inventory and accounts receivables financing requirements along with customers’ more optimistic economic outlook.
More than half (53.3 percent) of the respondent banks reported generally unchanged household loan demand while about a third (36.7 percent) of respondents indicated increased demand for credit from households in Q3 2023 based on the modal approach. DI-based results indicated a net rise in household loan demand across all key categories such as housing, credit card, auto, and personal/salary loans mainly due to higher household consumption and housing investment including banks’ more attractive financing terms.