Banks further tighten lending standards in Q2

MANILA, Philippines – Banks continued to tighten credit standards for loans to enterprises through stricter collateral requirements and loan covenants, a survey conducted by the Bangko Sentral ng Pilipinas (BSP) showed.

Dennis Lapid, deputy director at the BSP’s Department of Economic Research, said the latest Senior Loan Officers Survey showed a slight net tightening of overall credit standards for loans extended to business in the second quarter using the diffusion index (DI) approach.

Lapid said the number of respondents indicating tighter overall credit standards outnumbered those that indicated the opposite.

“The net tightening of overall credit standards was attributed by respondent banks to perceived stricter financial system regulations, their reduced tolerance for risk, less favorable outlook on certain industries or firms, and deterioration of bank’s portfolio,” he said.

According to respondent banks, the net tightening of overall credit standards for business loans reflected stricter loan covenants and increased use of interest rate floors.

In the DI approach, a positive index for credit standards indicates that the proportion of banks that have tightened their credit standards are greater compared to those that eased.

The DI is the difference between the banks that tightened and the banks that eased credit standards.

The DI for credit lines to enterprises stood at 6.5 percent as the percentage of banks that tightened reached 9.7 percent as against those that eased at 3.2 percent.

The survey showed banks tightened overall credit standards for loans to large middle-market enterprises as well as small and medium-sized enterprises but kept standards for top corporations and microenterprises.

Lapid said most respondent banks foresee maintaining their overall credit standards for loans to business over the next quarter largely on account of banks’ stable outlook on the economy as well as certain industries or firms along with their expectations of an unchanged tolerance for risk.

The survey showed the overall credit standards for loans to households were unchanged with equal percentages of banks reporting tighter and easier credit standards.

“The steady credit standards were attributed by respondent banks largely to their unchanged risk tolerance and profile of borrowers, stable economic outlook, and unchanged degree of competition from banks and non-bank lenders,” he added.