MANILA, Philippines - Most local banks continued to impose stricter standards for consumer loans in the third quarter, according to a Bangko Sentral ng Pilipinas survey.
“The DI (diffusion index) approach... indicated a net tightening of overall credit standards for household loans owing to less aggressive competition from banks and non-bank lenders and decreased access of banks to money or bond market financing,” according to the latest Senior Loan Officers survey.
“In particular, banks’ responses indicated stricter collateral requirements and increased use of interest rate floors for all types of household loans,” the BSP said.
Household loans include credit extended for housing, credit card loans, auto loans, and personal or salary loans.
The survey showed a diffusion index of 9.5 percent in the third quarter, up from five percent in the second quarter. This is the fourth consecutive quarter the index showed a net tightening in credit standards for households.
The diffusion index approach measures the proportion of banks that tightened credit standards versus those that eased them.
For the next quarter, most or 94.7 percent of the respondent banks expect to maintain their credit standards. However, the remaining said standards may tighten “slightly” amid the expected decline in borrowers’ profiles and reduced tolerance for risk.
Meanwhile, banks’ credit standards for loans extended to corporations were basically unchanged in the third quarter from the second quarter. The diffusion index showed a zero percent reading, unchanged from the previous quarter.
“The unchanged overall credit standards was attributed by banks to their steady outlook on the domestic economy as well as specific industries such as manufacturing, real estate, renting and business activities, wholesale and retail trade, and utilities,” the BSP said.
The survey also showed that a net increase in the overall demand for loans from both households and businesses was observed in the third quarter.
“For loans to businesses, the net increase in loan demand was attributed by banks to increased needs for working capital and fixed-capital investments of borrowers firms as well as lower interest rates and clients’ improved economic outlook,” the BSP said.
“Meanwhile, the net increase in demand for household loans reflected the low interest rate environment and more attractive financing terms offered by banks,” the BSP said.
The quarterly survey has been conducted by the central bank since the first quarter of 2009 to review banks’ credit standards, demand conditions for loans, and potential risks in asset markets.