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MANILA – The lending standards for businesses in banks are projected to tighten in the third quarter of 2023 due to the weakening profitability of their portfolios. However, households can expect an ease in lending standards as financial institutions show greater risk tolerance in that segment.
The Bangko Sentral ng Pilipinas (BSP) conducted the latest quarterly Senior Bank Loan Officers’ Survey, which collected data from 48 universal and commercial banks as well as thrift banks between June 5 and July 12. The survey results suggest a net tightening of overall loan standards for businesses, driven by factors such as reduced risk tolerance, deterioration of borrower profiles, and weaker profitability and liquidity of loan portfolios.
‘Net tightening’
A positive diffusion index (DI) number for credit standards indicates that a greater proportion of respondent banks have tightened their credit standards (“net tightening”). Conversely, a negative DI for credit standards indicates that more respondent banks have eased their credit standards compared to those that tightened (“net easing”).
Based on the survey results, banks anticipate a net tightening of overall loan standards for businesses. On the other hand, banks expect a net increase in overall credit demand from enterprises due to factors such as firms’ increasing inventory and accounts receivables financing requirements, as well as an improvement in customers’ economic outlook.
For households or consumer borrowers, the survey indicates a net easing in loan standards. This is attributed to increased risk tolerance and improving profitability of banks’ portfolios in this market segment, as well as more desirable borrower profiles. Additionally, banks anticipate a net rise in overall demand for consumer loans, driven by expectations of higher household consumption and housing investment.
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