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Banks keep credit standards steady in Q1

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MOST BANKS kept their lending criteria little changed in the first quarter, according to the results of a central bank survey.

Lenders broadly maintained their credit standards for loans to both enterprises and households as the year opened, according to the results of the Bangko Sentral ng Pilipinas’ latest Senior Bank Loan Officers’ Survey.

This marks the 40th consecutive quarter that majority of respondent banks reported broadly unchanged credit standards since the second quarter of 2009.

The central bank uses the quarterly survey to understand the lending decisions made by banks and monitor bank credit. A total of 50 out of 66 banks — 42 universal and commercial banks and 24 thrift banks — surveyed responded.

Most banks, or 72.9% of those surveyed, said they used the same standards for granting loans to businesses, higher than the 71.1% that said so during the fourth quarter of 2018, according to the modal approach.

However, under the diffusion index (DI) approach, more banks reported a net tightening of credit standards, which they attributed to “their reduced tolerance for risk, deterioration in the profitability and liquidity of their portfolio, less favorable economic outlook, and perception of stricter financial system regulations,” the report released Friday showed.

“In terms of borrower firm size, banks’ responses pointed to a net tightening of credit standards for loans across all firm sizes namely, top corporations, large middle-market enterprises, small and medium enterprises (SMEs) and micro-enterprises based on the DI approach.”

A positive DI for credit standards means that more banks have tightened lending rules compared with those that eased. A negative DI indicates the opposite.

Some 73.3% of banks meanwhile reported that they used the same standards for deciding on personal loans in the first three months of the year, down from 78.6% in the previous quarter.

However, using the DI approach, banks said they were stricter in lending to individuals, particularly for auto and personal or salary loans.

“The overall net tightening of standards for household loans reflected stricter collateral requirements and loan covenants, shorter loan maturities, and increased use of interest rate floors. Respondent banks attributed the tightening of overall credit standards for household loans largely to their reduced tolerance for risk and deterioration in the profitability of their portfolio,” the report said.

For this quarter, based on the DI approach, some lenders see a net tightening in their lending standards for both businesses and households due to expectations of stricter financial system regulations, a deterioration in borrowers’ profiles and profitability, as well as lower tolerance for risk.

Overall, most banks continued to see stable loan demand from both households and businesses, the survey results showed. There was even a net increase in loan demand from large middle-market enterprises and SMEs as well as for credit card loans based on the DI approach.

Some 73.3% of respondent banks also said they kept borrowing requirements steady for commercial real estate loans during the first quarter, lower than the 76.7% booked in the last quarter of 2018. However, the DI approach showed some lenders actually tightened their credit standards for businesses due to “wider loan margins, reduced credit line sizes, stricter collateral requirements and loan covenants, shortened loan maturities, and increased use of interest rate floors.”

Meanwhile, 82.6% reported unchanged credit standards for housing loans extended to households, up from 80% in the previous quarter. DI-based results also suggested maintained credit standards for housing loans attributed largely to respondent banks’ unchanged tolerance for risk.

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