Bangko Sentral ng Pilipinas standards for loans, real estate properties

The Second Quarter 2022 Senior Bank Loan Officers’ Survey (SLOS) was conducted June 16 until July 11 before the Bangko Sentral ng Pilipinas (BSP) announced an off-cycle 75 basis points (bps) increase to the key overnight borrowing rate, which lifted the key rate from 2.5 percent to 3.25 percent. The 40 surveyed banks have not yet accounted the surprise rate hike last July 14.
The SLOS which applies two approaches the modal and the diffision index (DI), noted a higher number of surveyed banks that kept their overall credit standards steady for loans to enterprises and consumers during the survey period.
Based on the DI results, the BSP said there are “diverse trends” since lending standards for businesses showed a net tightening while consumer loans have a net easing of credit standards.
About 76.1 percent of the 40 banks surveyed said they have unchanged overall lending standards for business loans as per the modal approach.
In the DI approach, there was a net tightening across all borrowers – from top corporations, large middle-market enterprises, small and medium enterprises, and micro enterprises.
Banks attributed the overall tightening of credit standards on the deterioration of borrowers’ profile and of the profitability of banks’ portfolio, and a more uncertain economic outlook. “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,” said the BSP. The decline in banks risk tolerance is also a factor in the net tightening in credit standards in the second quarter.
As for lending to households, 73 percent of banks surveyed said they did not change their lending standards based on the modal approach but again, for the DI results, there was net easing in credit standards for consumer loans.
This net easing was due to banks’ optimistic economic outlook, increased risk tolerance, and improvement in borrowers’ profile when it comes to consumer loans. It translated to longer loan maturities, narrower margins for loans, and decreased use of interest rate floors. The net tightening of credit standards was reflected in the decreased size of credit lines and stricter collateral requirements.
For the third quarter, the BSP said modal-based results indicate that more banks expect to maintain their overall credit standards. Base on the DI approach, banks see a net easing in 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.
The SLOS also include commercial real estate loans and residential property loans in the survey when predicting loan demand.
About 73.3 percent of banks reported broadly maintained overall credit standards for commercial real estate loans. The DI method still indicated a net tightening, however, due to decreased risk tolerance and deterioration of borrowers’ profile, said the BSP.