The country’s banks expect stricter credit rules on loans to businesses and individual borrowers in the fourth quarter, according to the Bangko Sentral ng Pilipinas (BSP).
Results of the Third Quarter 2020 Senior Bank Loan Officers’ Survey indicated a net tightening of overall credit standards for loans to enterprises and households for October to December using the diffusion index (DI) approach.
Lara Romina Ganapin, acting deputy director of rthe central bank’s Department of Economic Research, said in a briefing on Thursday that the anticipated tighter standards were “on the back of a more uncertain economic outlook, along with [the] expected deterioration in the borrowers’ profiles and profitability of banks’ portfolio, including banks’ lower tolerance for risk.”
In terms of loan demand, results based on the DI approach suggested expectations of a net increase in overall demand for business loans. These are associated largely with corporate clients’ higher working capital requirements, an increase in customer inventory financing needs, a decline in clients’ internally generated funds, and lack of other sources of funds.
DI-based results for loans extended to households, meanwhile, showed expectations of a net decline in overall demand, including housing, automobile and personal/salary loans.
“The expected net decrease in demand for housing, auto and personal/salary loans was attributed by respondent banks largely to lower household consumption and housing investment,” the survey said.
Third-quarter results
In the third quarter, lenders tightened their credit rules on loans extended to companies and individual borrowers, which they attributed to, among other factors, firms’ less favorable economic outlook, deterioration in the profitability of banks’ portfolio and profiles of borrowers, and reduced tolerance for risk.
These same factors, they said, also contributed to the overall tightening of credit standards for loans to households.
Bangko Sentral Governor Benjamin Diokno said the continued reopening of the economy should incrementally boost loan demand in the next quarters as the capital requirements of businesses increase in anticipation of the economy’s recovery.
“The recent easing [of lockdown] measures [imposed] since March and restoration of economic activity would allow [the] more effective transmission of monetary policy to the wider economy,” he said.
According to him, central bank is confident in the soundness and resilience of the banking sector, as capital adequacy ratios have stayed above the prescribed standards.
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