Latest results of the Second Quarter 2022 Senior Bank Loan Officers’ Survey (SLOS) conducted by the Bangko Sentral ng Pilipinas showed that a higher number of bank respondents retained their overall credit standards for loans to enterprises and consumers as indicated by the modal approach.
However, the diffusion index (DI) results revealed diverse trends as lending standards for businesses generally reflected a net tightening while a net easing of credit standards is observed for consumer loans.
The Q2 2022 modal-based results indicated that most respondents (76.1 percent) indicated generally unchanged overall lending standards for business loans. Meanwhile, the DI approach showed a net tightening of overall lending standards across all borrower firm sizes (specifically top corporations, large middle-market enterprises, small and medium enterprises, and micro enterprises).
Bank respondents reported that the overall tightening of credit standards was mainly due to the following factors: deterioration of borrowers’ profile and of the profitability of banks’ portfolio, and a more uncertain economic outlook.
In terms of specific credit standards, the net tightening of general lending standards was reflected in stricter collateral requirements and loan covenants, including increased use of interest rate floors. On the other hand, net easing of credit standards was observed in terms of narrower loan margins, wider size of credit lines, and longer loan maturities.
While a bigger proportion of respondent banks expect generally unchanged lending standards for firms in Q3 2022, the DI approach continue to show anticipations of a net tightening in credit standards given the following reasons: less favorable economic prospects, decline in risk tolerance, and deterioration of borrowers’ profile as well as banks’ profitability and liquidity.
The latest survey shows that a majority of the survey participants (73.0 percent) maintained their lending standards for loans extended to households. Meanwhile, overall results from the DI method pointed to a net easing in credit standards for consumer loans which respondent banks attributed to optimistic economic outlook, increased risk tolerance, and improvement in borrowers’ profile.
Under the specific credit standards, the net easing in lending standards were reflected in longer loan maturities, narrower margins for loans, and decreased use of interest rate floors. Meanwhile, the net tightening of credit standards was shown in terms of decreased size of credit lines as well as stricter collateral requirements.
Over the next quarter, the modal-based results showed that a larger percentage of respondent banks expect to maintain their overall credit standards. Mirroring the survey results from the previous quarter, the DI-based approach indicated bank respondents’ expectations of net easing overall credit standards for consumers due to improvement in borrowers’ profile and profitability of banks’ portfolio, less uncertain economic outlook, and increased tolerance for risk.
Results for Q2 2022 indicated that most respondent banks are seeing generally steady loan demand from both businesses (56.3 percent) and households (67.6 percent) based on the modal approach.
At the same time, DI-based results showed a net increase in overall credit demand from across all firm classifications and key categories of consumer loans (particularly housing loans, credit card loans, and auto loans) amid the improvement in business and consumer confidence.
The reported net rise in demand for business loans was ascribed to increased customer inventory and accounts receivable financing needs, and improvement in customers’ economic outlook. Similarly, the net increase in demand for household credit was mainly linked to higher household consumption and banks’ more attractive financing terms.
For Q3 2022, more than half of the respondent banks expect unchanged loan demand from both firms and households. Meanwhile, based on the DI method, survey participants anticipate a net increase in credit demand from businesses and consumers. Banks’ expectations of a net rise in overall demand for credit from firms is driven by customers’ more optimistic economic outlook as well as increased inventory and accounts receivable financing needs. Similarly, banks’ expectations of a net increase in overall loan demand from households are due to the expected uptick in consumption and housing investment, lower interest rates, and banks’ more attractive financing terms.
