The banks reported tighter credit standards on loans as a whole in the third quarter, even as demand for credit remained robust.
The Bangko Sentral ng Pilipinas (BSP) reported in its quarterly survey of senior loan officers of a “net tightening” in overall credit standards, when lender credit accommodations became that much harder to come by for the third consecutive quarter. The net tightening was most apparent when viewed through the diffusion index, or DI. The DI tracks the predominance of banks saying loans were released on the basis of more stringent requirements, than those saying the credit standards had been eased.
The tighter credit standards, particularly for commercial real-estate loans, came with increased demand for these loans due to the higher working capital and inventory financing needs of borrowers and the clients’ improved economic outlook.
The tighter overall credit standards for loans, in general, resulted from the deterioration in the profitability of the banks’ loan, portfolios, less favorable economic outlook, perceived financial-system regulation, the banks’ reduced tolerance for risks, as well as the deterioration in borrower profiles. This tightening in credit standards was most apparent in the form of wider loan margins, reduced credit line sizes, stricter collateral requirements and loan covenants, shorter loan maturity and increased use of interest rate floors.
In terms of specific credit standards for commercial real-estate loans, firm borrowers for their real-estate needs experienced unchanged loan covenants, but with wider loan margins, stricter collateral requirements and increased use of interest rate floors.
Individuals who took out a loan for their personal real-estate needs also experience tighter credit standards during the period, according to the central bank.
“The net tightening of credit standards for housing loans was attributed by respondent banks largely to perceived stricter financial-system regulations, as well as clients’ less favorable economic outlook.
For the next quarter, banks foresee a net easing of credit standards for housing loans on expectations of an improvement in the profitability of banks’ portfolio, more aggressive competition from banks and nonbank lenders, and increased tolerance for risk.
Banks, meanwhile, anticipate generally steady loan demand for real estate loans in the fourth quarter of the year.