LOCAL lenders imposed tighter standards in lending to both enterprises and households in the first three months of the year, due largely to reduced tolerance to risks and a perception of stricter financial system during the period.
In the presentation of the results of its latest Senior Bank Loan Officers’ Survey, the Bangko Sentral ng Pilipinas (BSP) said that banks pointed to a net tightening of overall credit standards for loans to both enterprises and households in the first quarter of 2015, as opposed to the results in the previous quarter ending December 2014, when the results showed that credit standards for corporate lending were unchanged, while credit standards for loans to households showed a net tightening.
The DI, or diffusion index, of banks’ standards in lending to enterprises is at 13.8 percent and 5.3 percent in lending to households in the first quarter of the year.
The BSP uses the DI approach in determining the movement of loan standards of local banks. The DI takes those that indicated that they tightened their credit standards and subtracted them to those that indicated otherwise, which means that a positive DI points to a net tightening and negative DI to net easing and 0 as unchanged.
For enterprises, banks said that the tighter overall credit standards were attributed to their reduced tolerance for risk, as well as perceptions of stricter financial-system regulations.
The tightness in lending standards for enterprises is seen in terms of stricter collateral requirements and loan covenants for all types of business loans, except microenterprises, as well as shorter loan maturities for loans to small and medium enterprises.
For households lending, meanwhile, banks also implemented stricter collateral requirements for all types of loans extended to households and wider loan margins for housing and auto loans.
In the quarter ahead, most respondent banks see largely unchanged credit standards—but a slight skew is seen toward easing in enterprises and tightening in households loans.
“Respondent banks cited more aggressive competition from banks and nonbank lenders, increased tolerance for risk, and improvement in the profitability of banks’ portfolio as among the reasons behind the expected net easing of credit standards [for enterprises],” the BSP said.
Expectation of continued strict financial-system regulations and banks’ reduced tolerance for risk, meanwhile, put pressure on banks to tighten credit standards in lending to households for next quarter.