November 21, 2017, 5:07 am
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Bank lending standards steady

Results of the Q3 2017 Senior Bank Loan Officers’ Survey (SLOS) showed that a majority of the respondent banks continued to maintain their credit standards for loans to both enterprises and households during the quarter based on the modal approach.

This is the 34th consecutive quarter since Q2 2009 that the majority of respondent banks reported broadly unchanged credit standards.

Most banks, or 88.9 percent, indicated that their credit standards for their loans to enterprises remained unchanged during the quarter using the modal approach. 

However, results based on the DI approach indicated a net tightening of credit standards for business loans attributed to respondent banks’ less favorable economic outlook, perceptions of stricter financial system regulations, and banks’ reduced tolerance for risk as well as a decline in borrowers’ profiles. In terms of specific credit standards, the observed net tightening of overall credit standards is reflected in respondent banks’ stricter loan covenants and increased use of interest rate floors particularly for loans to large middle-market enterprises and small- and medium-sized enterprises (SMEs).

In terms of borrower firm size, banks’ responses indicated a net tightening of overall credit standards for loans to large middle-market enterprises and SMEs, while overall credit standards for loans to top corporations and micro-enterprises showed a net easing based on the DI approach.

Results based on the modal approach showed that most of the respondent banks anticipate unchanged credit standards in the next quarter.  The DI approach showed that some respondent banks expect their overall credit standards for business loans to tighten over the next quarter largely on account of banks’ less favorable economic outlook and a decrease in the profitability of banks’ portfolio.

The results of the survey also showed that most respondent banks (90.0 percent) kept their overall credit standards unchanged for loans extended to households during the quarter based on the modal approach. 

Likewise, results based on the DI approach reflected unchanged credit standards, given the equal number of respondent banks that indicated a tightening of credit standards and those that answered easing of credit standards. 

In particular, credit standards for housing loans were unchanged based on the DI approach. The maintained overall credit standards were attributed by respondent banks to their unchanged tolerance for risk and stable profile of their household borrowers, among others. In terms of specific credit standards, results based on the DI approach indicated overall unchanged collateral requirements, loan covenants and use of interest rate floors.

Over the next quarter, results based on the modal approach indicated that the majority of the respondent banks anticipated maintaining their overall credit standards. Meanwhile, the DI approach showed expectations of an overall net easing of credit standards, particularly for housing, credit card and auto loans, on the back of respondent banks’ increased tolerance for risk and anticipated improvement in the profitability of their portfolio, along with a more favorable economic outlook.

Responses to the survey question on loan demand indicated that the majority of the respondent banks continued to see stable overall demand for loans from both enterprises and households. Using the DI approach, however, results showed a net increase in loan demand across all firm sizes and all types of household loans (except personal/salary loans). 

The net increase in loan demand of firms was largely attributed by banks to higher requirements of borrower firms for working capital and accounts receivable financing.  Respondent banks attributed the net increase in demand for household loans largely to low interest rates and banks’ more attractive financing terms.

Over the next quarter, most of the respondent banks expect unchanged loan demand from both firms and households. 

However, a larger proportion of respondents expect overall demand for corporate and household loans to increase further in the next quarter relative to those who indicated the opposite. Respondent banks cited expectations of higher working capital and accounts receivable financing needs of borrower firms as the key factors behind the expected increase in demand for business loans. 

The anticipated net increase in household loan demand was attributed by respondent banks to expectations of more attractive financing terms offered to clients and continued low interest rates along with higher household consumption.

The BSP has been conducting the SLOS since 2009 to gain a better understanding of banks’ lending behavior, which is an important indicator of the strength of credit activity in the country. 

The survey also helps the BSP assess the robustness of credit demand conditions as well as conditions in asset markets, and the overall strength of bank lending as a transmission channel of monetary policy. 

The survey consists of questions on loan officers’ perceptions relating to the overall credit standards of their respective banks, as well as to factors affecting the supply of and demand for loans to both enterprises and households.4 Survey questions were sent to 35 commercial banks,5 29 of whom sent their responses to the latest survey, representing a response rate of 82.9 percent.6 The analysis below focuses on the quarter-on-quarter changes in the perception of respondent banks.
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