Banks set tighter credit standards

MANILA, Philippines - Local banks have tightened their credit standards for consumers in the first quarter of the year,  according  to a survey by the Bangko Sentral ng Pilipinas (BSP).

In its latest Senior Loan Officers Survey, the central bank said most banks implemented a stricter lending standards for households.

“The net tightening in the household sector is due to... consumer loans growing over the past few quarters... and the banks’ reduced tolerance of risk typically observed in the first quarter,” BSP Assistant Governor Cyd Amador said in a briefing.

On the other hand, enterprises or firms borrowing from banks have found it easier to access funds which the BSP attributed to favorable economic growth prospects.

The net easing for enterprise lending is due to the perception of the corporate sector expansion to be more viable due to favorable growth prospects (of the Philippine economy),” Amador said.

The survey showed a diffusion index of 10 percent for lending to households in the first quarter, up from 4.8 percent in the last quarter of 2013, while the index for credit to firms went down to -3.7 percent from 0.0 percent.

“The diffusion index approach... indicated a net tightening of overall credit standards for household loans owing to banks’ reduced tolerance for risk and stricter financial system regulations,” the BSP said.

“In particular, banks’ responses indicated stricter collateral requirements for housing loans and reduced credit line sizes for auto loans,” the central bank continued.

The BSP said that while most lenders expect credit standards being maintained in the second quarter, some said these may “ease slightly” amid forecast improvements in the banks’ profitability, a favorable economic outlook, and improving borrowers’ profile.

Looking at credit standards for firms, the BSP cited the robust Philippine economic growth which hit 7.2 percent last year as the main reason behind the loosening of standards during the period in review.

“Banks that indicated an easing of overall credit standards pointed to a more favorable outlook on the domestic economy and certain industries, which include manufacturing, real estate, renting and business services, and wholesale and retail trade,” the central bank said.

“Respondent banks also cited the improved profitability of their asset portfolios and increased tolerance for risk as key reasons for easing their credit standards. In particular, banks’ responses indicated increased credit line sizes, longer loan maturities except for micro enterprises, and reduced use of interest rate floors except for micro enterprises,” the BSP added.

In the same survey, banks were found to have put in place stricter standards for commercial real estate loans during the first three months of the year.

“The net tightening of overall credit standards for commercial real estate loans was attributed by respondent banks to stricter oversight of banks’ real estate exposure along with banks’ reduced tolerance for risk,” the central bank said.

“In particular, respondent banks reported wider loan margins, reduced credit line sizes, stricter collateral requirements and loan covenants, and lower loan-to-value ratios for commercial real estate loans,” the BSP said.

The quarterly survey has been conducted by the BSP since the second quarter of 2009 to assess credit standards, demand conditions for loans, and potential risks in asset markets.