A substantial majority of banks or 80.4 percent of their number reported maintaining their credit standards for business loans in the latest Q3 2024 iteration of the senior bank loan officers’ survey (SLOS) of the Bangko Sentral ng Pilipinas (BSP).
This marks a decline from 87 percent in Q2, signaling a shift in sentiment among lenders. While the overall trend suggests stability, the diffusion index (DI) points to a tightening of standards, driven by growing concerns over borrower profiles and the profitability of lending.
Despite the stable modal results, the DI method indicates a net tightening of business loan standards, reflecting a cautious approach among banks. This tightening is anticipated to persist into Q4 2024, as financial institutions respond to deteriorating borrower profiles and increasingly stringent regulatory requirements.
A similar trend is evident in household lending, where 80 percent of banks reported unchanged standards, a slight decrease from 84.2 percent in Q2. Once again, the DI reveals tightening credit standards, primarily due to reduced risk tolerance and concerns about borrower creditworthiness, the BSP said.
On the demand side, 72.5 percent of banks indicated stable demand for business loans in Q3, with expectations for continued stability in the upcoming quarter. Conversely, the household loan segment saw a slight decrease in banks reporting unchanged demand. However, the DI results suggest a net increase in demand, attributed to attractive financing options and rising consumer spending.
As banks look ahead to Q4 2024, they expect stable loan standards for both business and household credit, the BSP said. Nonetheless, the outlook is tempered by a cautious approach to risk and borrower stability, indicating a complex lending environment as we move into the next quarter. Financial institutions are poised to navigate these mixed signals carefully, balancing the need for profitability with the imperative to lend responsibly.
