The bulk of banks surveyed by the Bangko Sentral ng Pilipinas (BSP) in the second quarter have kept their loan rates steady when analyzed using the modal approach.
But from the perspective of the diffusion index approach, the BSP’s the senior bank officers’ survey indicated a net tightening.
According to the BSP, the modal-based outcomes of the survey show that a larger proportion of banks or 89.1 percent kept their loan rates steady for commercial borrowers. In contrast, the DI approach indicated a net tightening of lending rates on the back of the deterioration of the profitability of the banks’ portfolios, less desirable borrowers’ profiles and the banks’ collective reduced tolerance for risk.
“Over the next quarter, the modal approach showed expectations of generally unchanged credit standards for businesses while the DI method pointed to bank respondents’ anticipations of net tightening of loan standards. Banks foresee an overall net tightening in loan standards for enterprises in 3Q 2023 given the following considerations: (1) weakening profitability and liquidity of banks’ portfolios, (2) deterioration of borrowers’ profiles, and (3) reduced tolerance for risk,” the BSP said.
A higher number of banks or 69.7 percent also kept their loan rates steady when lending to households during the period.
“On one hand, the DI approach indicated a net easing of credit standards for household loans, particularly for housing, credit card, and personal/salary loans. Bank respondents associated the easing of lending standards for consumer loans mainly with an improvement in the profitability of banks’ portfolios, an increase in risk tolerance, less uncertain economic outlook, and more aggressive competition from banks and non-bank lenders,” the BSP said.
In the succeeding quarter, the modal approach indicated a higher percentage of surveyed banks expecting generally unchanged credit standards for household loans. The DI approach showed bank respondents’ expectations of a net easing in household loan standards in Q3 2023 mainly due to (1) increased risk tolerance, and improving profitability of banks’ portfolios for this market segment, and (2) more desirable borrowers’ profiles.
On housing loans, 73.3 percent of the banks surveyed kept their loan rates steady for residential housing borrowers during the period. The DI-based method showed a net easing of standards traced to improving borrowers’ profiles and less uncertain outlook for the broad economy.
On loan demand for businesses, the results of the modal approach showed lending standards broadly unchanged although the DI method still reflected a net increase in the banks’ lending due to increased customer inventory financing and accounts receivable financing and the improvement in their customers’ economic prospects.
As for household loans, results show generally unchanged lending demand from households or 65.6 percent based on the modal approach but a net increase in overall household loan demand across housing, credit card, auto and personal or salary loans.
The banks traced the increased household loan demand with higher consumption and housing investment and the banks’ more attractive loan terms.
“Over the following quarter, more than half of the respondent banks expect maintained loan demand from households. Meanwhile, the DI method, indicated that banks anticipate a net rise in overall consumer loan demand in Q3 2023 largely due to expectations of higher household consumption and housing investment,” the BSP said.
