Loan yardsticks broadly unchanged in Q2

“The BSP said the diffusion index approach showed a net tightening of credit standards on loans granted to enterprises and households alike.

The signals were mixed in the latest survey on lending standards conducted regularly by the Bangko Sentral ng Pilipinas (BSP) for the purpose of determining the robustness of the lending environment in the country.

If the yardstick was based on the sheer number of response alone, then banks across the country have not tightened the standard at which they allow borrowers to access bank funds, based on the response of its senior bank loan officers’s survey or SLOS conducted in the second quarter this year.

According to the BSP, the various lenders “continued to maintain their credit standards for loans to both enterprises and households based on the modal approach.” This was also the 37th time in a series when the lenders reported broadly unchanged lending standards when releasing loans.

The modal approach allows the BSP to determine changes in lending standards by looking at the option with the highest share of rensponses, in constrast to the diffusion index (DI) approach which nets out the number of banks that tightened their loan standards against banks that did not.

The BSP said the diffusion index approach showed a net tightening of credit standards on loans granted to enterprises and households alike. A quarter earlier, loan terms on enterprises were proven unchanged while those on householder betrayed a net tightening.

The results of the second-quarter survey this year on lending standards show most banks or 82.1 percent indicating no change in the yardstick based on the modal approach but showed a net tightening based on the DI method.

The net tightening of standards under the DI method was traced to “perception” of stricter regulations and deterioration of the profile of borrowing corporations.

Under this approach, the various banks imposed stricter collateral requirements and extended shorter terms for their money on the borrowers, partcicularly on large middle-market enterprises, small and medium entreprises as well as micro enterprises. The credit standard on large corporations were unchanged in the DI method.

However, banks anticipate extending more stringent terms on borrowers down the line even if they happen to be corporations on account of more stringent regulatory strictures and expectations of a decline the deposit base of banks as well as the deterioration in the credit profile of borrowers.

As for lending to households, 94.1 percent of the banks kept their lending standards unchanged in the modal approach but betrayed a net tightening under the DI approach.

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