Banks maintain lending standards in 2nd quarter

Philippine banks continued to maintain tighter credit standards in the second quarter, a Bangko Sentral ng Pilipinas (BSP) survey showed.

The BSP’s latest Senior Bank Loan Officers’ Survey (SLOS) published late on Friday showed most respondent banks maintained their lending standards for both enterprises and households, based on the modal approach.

Based on the diffusion index (DI), the study showed there was a net tightening of credit standards imposed for businesses, while lending standards were unchanged for households in the April-June period.

By using the modal approach, the results of the survey are analyzed by looking at the option (tightening, easing, or unchanged) with the highest share of responses.

Under the DI approach, a positive DI for credit standards indicates that the number of banks that have tightened their credit standards exceeds those that eased (net tightening), while a negative DI indicates the opposite (net easing). Unchanged means the number of banks that have tightened is equal to those that eased their credit standards. 

“Most survey participants (87%) retained credit standards for businesses based on the modal approach. The share of banks that reported unchanged credit standards in Q2 2024 was slightly higher than in Q1 2024 (86.3%),” the central bank said.

The BSP said the net tightening of credit standards in the second quarter was also due to the “deterioration of borrowers’ profiles and profitability of banks’ portfolios.”

Meanwhile, more banks likewise maintained their credit standards for household loans in the second quarter (84.2%) versus the previous quarter (77.1%).

The BSP attributed this to “stable profiles of borrowers and banks’ unchanged tolerance for risk.”

For the next quarter, banks are expected to keep their lending standards for businesses generally unchanged.

“However, DI results showed banks’ anticipation of a net tightening in credit standards given the deterioration in borrowers’ profiles and in the profitability and liquidity of banks’ portfolios,” the BSP said.

Meanwhile, most bank respondents also expect unchanged household loan standards.

“The DI method revealed banks’ expectations of a net easing of lending standards due to banks’ higher risk tolerance and improvement in the profitability of banks’ loan portfolios as well as a less uncertain economic outlook.”

LOAN DEMAND

Based on the DI approach, loan demand from businesses grew in the second quarter due to “increased inventory and accounts receivable financing needs, as well as an improvement in the economic outlook.”

For the third quarter, banks see “broadly steady” loan demand from enterprises.

“DI results showed that bank participants anticipate a net rise in credit demand from businesses in Q3 2024 given firms’ higher inventory and accounts receivable financing needs.”

Meanwhile, an increase in loan demand from retail borrowers was seen in the second quarter amid attractive financing terms and a rise in consumption and investment.

“For the next quarter, modal results indicated that most respondent banks (60.5%) anticipate steady demand for loans to households,” the central bank said.

“On one hand, DI results showed an expected net increase in household loan demand driven by rising household consumption and banks’ more attractive lending terms.”

The SLOS is a quarterly survey conducted by the BSP to gather qualitative information on lending conditions and demand from businesses and consumers.

For this round of the SLOS, the BSP sent questions to 60 banks, but only 55 lenders were able to respond. This is equivalent to a response rate of 91.7%. Information was gathered from May 29 to July 10. — Luisa Maria Jacinta C. Jocson