Local lenders plan stricter credit standards for corporate borrowers while maintaining the terms for household borrowers in the next months, a Bangko Sentral ng Pilipinas, or BSP, survey showed.

The survey used the BSP's diffusion index or DI method for its quarterly Senior Bank Loan Officers' survey.

It involved senior loan officers from 48 banks and was done from 4 September to 13 October, when the BSP kept its policy rate for private banks elevated at 6.25 percent to slow inflation.

The DI-based results indicated banks are keen on imposing stricter standards in the fourth quarter on corporate borrowers through smaller credit amounts, additional loan conditions, or shorter loan validity.

"The DI method indicated banks' outlook of a net tightening of lending standards over the fourth quarter amid expectations of a deterioration in borrowers' profiles and decline in profitability.

"Banks are also expected to have reduced tolerance for risk," according to the BSP survey.

Under the DI method, credit tightening is indicated by a positive figure and a negative figure for credit easing.

The DI-based outlook data for the fourth quarter showed a positive 10, like the level in the second and third quarters or amid higher inflation rates than the ideal range of two percent to four percent.

Demand capped by inflation

Economic principles say higher inflation tempers consumer demand for goods and services, which then slows growth of company profits.

The BSP said loans for commercial real estate will likely be affected by the stricter credit standards.

Meanwhile, banks plan to continue existing credit standards for household borrowers due to "improvement in the profitability of banks' portfolios and borrowers' profiles along with banks' higher tolerance for risk," the BSP report said.

Banks said steady credit standards will be applied to house loans.

Using the modal method, on the other hand, BSP said most banks will likely maintain their credit standards both for corporate and household borrowers.

Banks representing 85.1 percent of the total respondents said their standards for corporate lending will be unchanged.

This share is bigger than the third quarter's 80.9 percent but smaller than the second quarter's 89.1 percent.

Meanwhile, 80.6 percent of the banks echoed the same decision for the household borrowers for the fourth-quarter perspective.

This share is much bigger than the third quarter's 68.8 percent and the first quarter's 69.7.

The majority said the steady credit standards will be applied both to commercial real estate and house loans.

In terms of demand for corporate loans, the modal method showed banks expect the same demand level, while the DI method found a higher demand.

"On one hand, DI results showed that surveyed banks expect a net increase in overall loan demand from firms in Q4 2023 due to higher inventory and accounts receivables, financing requirements, along with customers' more optimistic economic outlook," the BSP said.