Lending standards ‘broadly’ steady in Q4, but more

banks tighten criteria

January 18, 2019

BANKS in the country widely maintained lending criteria in 2018’s final quarter, although those
that tightened such standards outnumbered those who eased theirs, according to results of the
latest Senior Bank Loan Officers’ Survey which the Bangko Sentral ng Pilipinas (BSP) reported
on Friday.

Credit standards “broadly” steadied using the modal approach, which is based on the biggest
share of responses; but tightened under the diffusion index approach that showed the proportion
of respondents that tightened such standards exceeded that of those who eased them.

LENDING TO BUSINESS
About 71.1% of respondents indicated that they maintained credit standards for loans to
enterprises in the fourth quarter of 2018 from 77% in the third quarter, based on the modal
approach.

The diffusion index approach, however, pointed to a net tightening of lending standards that
quarter as respondents cited stricter financial system regulations and reduced tolerance for risk.
This was reflected in the banks’ use of stiffer collateral requirements and loan covenants,
shortened loan maturities, and increased use of interest rate floors.

Most respondents expected to maintain credit standards this quarter according to the modal
approach, but the diffusion index approach suggests that most banks expect overall credit
standards to further tighten over expectations of “stricter financial system regulations and more
uncertain economic outlook,” the BSP said in a statement.

LENDING TO HOUSEHOLDS
For household lending, 78.6% of respondents maintained overall credit standards based on the
modal approach, but the diffusion index mode reflected a net tightening of lending rules,
particularly for housing, automobile and personal loans.

”The overall net tightening of standards for household loans reflected stricter loan covenants and
increased use of interest rate floors. Respondent banks attributed the tightening of overall credit
standards for household loans largely to their perceptions of stricter financial system regulations
and reduced tolerance for risk,” the BSP said.

Most respondents also saw unchanged credit standards for household loans for this quarter, but
the diffusion index approach showed expectations of net tightening for household loans.

LOAN DEMAND
Majority of respondents continued to see stable demand for loans, although analysis using the
diffusion index approach showed a net increase in demand across firm sizes and types of
household loans.
Respondent banks attributed the net increase in demand for business loans to clients’ higher
working capital requirements and investment in production plants and equipment, as well as
“more attractive financing terms”, while the net increase in household loan demand was
attributed to higher consumption and low interest rates offered.

For this quarter, respondents see unchanged overall loan demand from both firms and
households, but a net increase in such demand.

REAL PROPERTY LOANS

About 76.7% of respondent banks said credit standards for commercial real estate loans steadied
last quarter, although there was a net tightening for the 12th consecutive quarter due to their
perception of stricter financial system regulations and a deterioration in the liquidity of their
portfolio.

”The net tightening of overall credit standards for commercial real estate loans reflected
respondent banks; wider loan margins, reduced credit line sizes, stricter collateral requirements
and loan covenants, shortened loan maturities and increase use of interest rate floors,” the BSP
noted.

Housing loans bared similar findings: standards maintained overall (80% of respondents asked
on the fourth quarter) although there was a net tightening both for last quarter and expected for
January-March 2019. — E. J. C. Tubayan

https://www.bworldonline.com/lending-standards-broadly-steady-in-q4-but-more-banks-tighten-criteria/