BANKS tightened their lending standards for corporations but eased these requirements for households looking for loans in the first three months of the year, according to the Bangko Sentral ng Pilipinas (BSP).
Based on the first quarter 2023 Senior Bank Loan Officers’ Survey (SLOS), BSP said diffusion index (DI)-based results showed a net tightening of loan standards for the 29th consecutive quarter, with banks citing reduced tolerance for risk and deterioration of borrowers’ profiles.
The SLOS, BSP said, consists of questions on loan officers’ perceptions relating to the overall credit standards of their respective banks, as well as to factors affecting the supply of and demand for loans to both enterprises and households.
“The net tightening of credit standards for business loans in Q1 2023 is reflected in the stricter collateral requirements and loan covenants, and more use of interest rate floors,” BSP said.
“The net easing of credit standards for household loans in Q1 2023 is reflected in the lengthened loan maturity and easing of collateral requirements for credit card loans, as well as lengthened loan maturity and narrower loan margins for auto loans,” it added.
Data showed a majority of bank participants or 76.7 percent reported generally unchanged credit standards for commercial real estate loans (CRELs).
Meanwhile, DI-based results showed a net tightening of loan standards for CRELs in the first quarter of 2023 for the 29th consecutive quarter, with banks citing reduced tolerance for risk and deterioration of borrowers’ profiles.
For the second quarter of 2023, most banks expect to maintain their credit standards for CRELs, while the DI-based method shows a net tightening of lending standards for CRELs in the next quarter.
Meanwhile, most respondent banks or 51.5 percent maintained their credit standards for loans extended to households in the first quarter of 2023. The DI approach reflected a net easing of lending standards for consumer loans, particularly for credit card loans and auto loans.
“Bank respondents attributed the easing of lending standards for consumer loans to the following factors—improvement in profitability of banks’ portfolios; optimistic economic expectations; increased risk tolerance; and improvement in borrowers’ profiles,” BSP said.
In the first three months of the year, BSP said more than half or 58.1 percent of surveyed banks reported generally unchanged credit standards for housing loans. However, the DI-based method indicated a net tightening of loan standards for residential real estate loans.
The tightening was attributed to several reasons: the deterioration in the profitability and liquidity of banks’ portfolios; weakening profile of borrowers; and banks’ reduced tolerance for risk.
“In the next quarter, a larger proportion of respondents anticipate generally steady lending standards for housing loans, while DI-based results reflect expectations of net easing of housing loan standards,” BSP said.
Loan demand
In the first quarter of 2023, BSP data showed that loan demand from 66.7 percent of firms remained “broadly unchanged” based on the modal approach.
The DI method, however, reflected a lower net increase in overall credit demand from across all firm classifications, driven largely by increased customer inventory and accounts receivable financing, along with improvement in customers’ economic prospects.
In the succeeding quarter, BSP said most participant banks responded with anticipation of broadly unchanged loan demand from firms.
Based on the DI method, however, banks indicated expectations of a net increase in overall demand for loans from businesses in the second quarter of , driven by firms’ increasing financing requirements along with an improved economic outlook.
“Loan demand for CRELs in Q1 2023 was unchanged based on both the modal and DI approaches due to stable economic prospects and steady inflow of customers’ internally-generated funds,” BSP said.
“A large majority of banks expect demand for CRELs to be maintained in the next quarter based on the modal approach. Meanwhile, the DI-based approach surveyed banks’ outlook of higher loan demand for CRELs in the second quarter of 2023,” it added.
The BSP said in the first quarter of 2023 results, 60.6 percent of households had “broadly unchanged loan demand” based on the modal approach.
Meanwhile, DI-based results showed a slower increase in overall household loan demand across all consumer loan categories during the first quarter of 2023 compared to the fourth quarter of 2022.
BSP said respondents attributed the general rise in consumer loan demand to higher household consumption and housing investment along with banks’ more attractive financing terms.
Over the following quarter, most respondent banks anticipate generally unchanged loan demand from households. The DI method indicated that banks foresee a net increase in overall consumer loan demand in the next quarter mainly due to expectations of a rise in household spending.
“Participating banks indicated broadly unchanged loan demand for housing loans in the first quarter of 2023 and expected a similar outcome in the second quarter of 2023,” BSP said.
“The DI approach pointed to a net rise in residential real estate loan demand for both the current quarter and the following quarter driven mainly by an increase in housing investment and household consumption,” it, however, said.