Banks set tighter standards for household borrowers

MANILA, Philippines - Local banks tightened their credit rules for household borrowers in the fourth quarter, according to a survey by the Bangko Sentral ng Pilipinas (BSP).

 “The DI (diffusion index) approach… indicated a net tightening of overall credit standards for household loans owing largely to perceived stricter financial system regulations,” according to the latest Senior Loan Officers Survey.

 “In particular, banks’ responses indicated reduced credit line sizes for auto loans and wider loan margins for personal and salary loans,” the BSP said.

Household loans pertain to finance auto loans, credit card loans, personal or salary loans, and housing loans.

A diffusion index of 14.3 percent was recorded for the fourth quarter, higher than the 9.5 percent in the third quarter, the BSP survey showed. This is the fifth consecutive quarter the index showed a net tightening for credit standards for household loans.

The diffusion index approach measures the proportion of banks that tightened credit standards versus those that eased them. A positive index means more banks tightened their standards, while a negative one shows there were that loosened them.

“Most of the respondent banks foresee maintaining their credit standards over the next quarter,” the BSP said.

 “However, some banks expect overall credit standards to tighten slightly due to expectations of continued strict financial system regulations and banks’ reduced tolerance for risk, among others,” the central bank added.

On the other hand, banks maintained their credit standards for enterprises in the fourth quarter, the same survey showed.

 “The unchanged overall credit standards was attributed by banks to their steady outlook on the domestic economy as well as specific industries, such as wholesale and retail trade, manufacturing, and real estate, renting and business activities, among others,” the BSP said.

The central bank said the banks still expect to maintain credit standards for enterprises in the first quarter of the year.

Looking at loan demand, the BSP said a diffusion approach showed a net increase in overall demand for corporate and household loans.

 “The net increase in loan demand for businesses was attributed by banks to clients’ improved outlook on the economy as well as increased inventory financing needs of borrower firms, among others,” the central bank said.

“Meanwhile, the net increase in overall demand for household loans reflected higher housing investment, lower interest rates, 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.

For the fourth quarter survey, questions were sent to 35 universal and commercial banks, with only 34 responding.