BANKS were found to still be wary about lending in the first three months of the year, as more lenders reported tighter loan standards during the period.
The Bangko Sentral ng Pilipinas (BSP) reported on Thursday that banks’ lending standards “remained cautious” in January to March this year, according to the latest results of their Senior Bank Loan Officers’ Survey.
Results based on the diffusion index (DI) approach continued to point to a net tightening of overall credit standards for both loans to enterprises and households in the first quarter of 2021, mirroring the results in the last three months of 2020.
In the DI approach, a positive DI for credit standards indicates that the proportion of respondent banks that have tightened their credit standards exceeds those that eased which results in a so-called net tightening of lending standards.
The BSP, however, said that a bulk of banks also indicated unchanged credit standards for the period.
Tightening of lending standards was recorded across all borrower firm sizes, specifically, top corporations, large middle-market enterprises, small and medium enterprises, and micro enterprises.
Respondent banks attributed the reported tightening of overall credit standards largely to a deterioration in the profiles of borrowers, reduced tolerance for risk, and less favorable economic outlook, among other factors.
The net tightening of overall credit standards for enterprises was reflected in reduced credit line sizes; stricter collateral requirements and loan covenants; and increased use of interest rate floors.
A net tightening of overall credit standards was also observed for household loans, specifically for housing, auto, and personal and salary loans.
The BSP said respondent banks cited a more uncertain economic outlook, a deterioration in borrowers’ profile, and reduced tolerance for risk as the key factors that contributed to the overall tightening of credit standards for household loans.
Bank lending in the country hit its biggest contraction in more than 14 years in February 2021 as it fell by 2.7 percent in February, contracting further from the 2.4-percent decline seen in the previous month.
Bank lending first collapsed into contraction territory in December by 0.7 percent. February was the eleventh consecutive month that bank lending has slowed despite the aggressive efforts of the BSP to lower interest rates and boost liquidity conditions.