Banks’ lending standards stable in Q2, BSP says

Banks successfully maintained stable lending standards in the second quarter of this year, the Bangko Sentral ng Pilipinas (BSP) reported on Friday evening.

The survey results among senior mortgage bank employees showed that a larger percentage of banks maintained general lending requirements for both businesses (87.0 percent) and households (84.2 percent).

The model-based survey results showed that the vast majority of surveyed banks did not change their standards for granting loans to enterprises.

On the other hand, the diffusion index (DI) approach indicated further tightening of credit standards due to deterioration of borrower profiles and profitability of banks’ portfolios.

Banks’ expectations regarding corporate lending standards remained unchanged in the next quarter, but DI results showed they still expect lending standards to tighten, again due to “deteriorating borrower profiles and the profitability and liquidity of banks’ portfolios.”

The DI also indicated that lending standards remained unchanged in the second quarter, similar to the previous quarter. This was attributed to stable borrower profiles and banks’ continued risk tolerance.

In the next quarter, taking into account the modal approach, more banks expect to maintain unchanged standards for granting loans to households.

Based on the DI approach, banks anticipate a relaxation of credit standards due to higher risk tolerance, improved loan portfolio profitability and lower uncertainty about the economic outlook.

The results of the study conducted using the modal approach indicate that the demand for loans from both businesses and consumers remains relatively stable.

DI-based statistics revealed an increase in overall loan demand across all company classifications.

The BSP said the overall increase in net demand for business loans was driven by increased demand for inventory and receivables financing as well as an improving economic outlook.

“In the next quarter, the majority of surveyed banks (66.0%) expect generally stable demand for loans from companies,” it added.

However, the DI results showed that banks participating in the survey expect demand for corporate loans to increase in the next quarter due to higher corporate inventories and demand for receivables financing.

Most participating banks reported generally stable consumer credit demand in the second quarter, consistent with the modal approach.

However, the DI method showed an increase in net demand for consumer loans in all major categories of household loans, which was driven by more attractive financing terms offered by banks and higher household consumption and real estate investments.

Looking ahead to the third quarter of this year, most bank respondents expect stable demand for household loans.

The DI approach also pointed to an increase in household demand for loans, driven by rising household consumption and more attractive lending terms from banks.