Category : Press Release
Date : July 22, 2021
Agency : Bangko Sentral ng Pilipinas
Title : Banks' Cautious Lending Stance Continue in Q2 2021
Article : Results of the Q2 2021 Senior Bank Loan Officers’ Survey (SLOS) showed that majority of the respondent banks kept their overall credit standards for loans to both enterprises and households generally unchanged during the quarter based on the modal approach. (1) Similar with the previous quarter’s outcome, results indicated by the diffusion index (DI) approach (2,3) showed a net tightening of overall credit standards for both loans to enterprises and households in Q2 2021.

ABOUT THE SURVEY

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, prevailing conditions in asset markets, and the overall strength of bank lending as a transmission channel of monetary policy. (4) 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.

The analysis of the results of the SLOS focuses on the quarter-on-quarter changes in the perception of respondent banks. Starting with the Q3 2018 survey round, the BSP expanded the coverage of the survey to include new foreign commercial banks and large thrift banks. Prior to Q3 2018, the survey covered only universal and commercial banks. During the Q2 2021 survey round, survey questions were sent to a total of 64 banks (42 universal and commercial banks and 22 thrift banks), 53 of whom sent in their responses, representing a response rate of 82.8 percent.

Responses for the Q2 2021 survey were collected during the government’s ongoing implementation of quarantine measures to moderate the spread of the COVID-19 infection rates since March 2020. Respondent banks’ inputs to the Q2 2021 SLOS were gathered between 2 June 2021 and 8 July 2021.

DETAILS OF THE SURVEY RESULTS

Lending to Enterprises

Based on the modal approach, majority of the respondents (70.0 percent) specified that overall credit standards for loans to enterprises were maintained during the quarter. On the other hand, DI-based results showed a net tightening of lending standards across all borrower firm sizes, particularly, top corporations, large middle-market enterprises, small and medium enterprises, and micro enterprises. As indicated by respondents, the reported tightening of overall credit standards was largely due to a deterioration in the profiles of borrowers and in the profitability of banks’ portfolio, reduced tolerance for risk, as well as a more uncertain economic outlook, among other factors.

On specific credit standards, the net tightening of overall credit standards was evident in terms of reduced credit line sizes; stricter collateral requirements and loan covenants; and increased use of interest rate floors. (5) Meanwhile, some form of easing was shown in terms of narrower loan margins and longer loan maturities.

In terms of outlook for the next quarter, while majority of the respondent banks anticipate steady overall credit standards for lending to businesses, DI-based results indicated expectations of net tighter standards amid a deterioration of borrowers’ profiles and in the profitability of banks’ portfolio, less favorable economic outlook, and banks' decreased tolerance for risk.

Lending to Households

Most respondent banks (68.6 percent) kept their overall credit standards for loans extended to households unchanged in Q2 2021. Meanwhile, the DI-based results reflected a net tightening of overall credit standards for household loans specifically for housing, auto, and personal/salary loans while results for credit card loans pointed to a net easing of standards. Respondent banks quoted the following elements that contributed to the general tightening of credit standards for consumer loans: a deterioration in borrowers’ profile and in the profitability in bank’s portfolio; a lower tolerance for risk; and a more uncertain economic outlook.

In terms of specific credit standards, the overall net tightening of lending standards to consumers was reflected in reduced credit line sizes as well as stricter loan covenants and collateral requirements. However, partial easing of credit standards for loans to households was reported in forms of narrower loan margins and longer loan maturities.

For Q3 2021, most of the respondent banks expect to retain their overall credit standards based on the modal approach. Conversely, DI-based results pointed to respondent banks' anticipation of a net easing of overall credit standards for household loans, citing expected improvement in borrowers' profiles and positive economic prospects.

Loan Demand

Results for the Q2 2021 survey indicated that most of the respondent banks observed an unchanged overall loan demand from both businesses and households. On the other hand, DI-based results showed a slight net increase in overall demand for business loans (particularly, top corporations) while a net decline in demand for all categories of consumer loans was observed.

According to respondent banks, the slight net increase in loan demand from enterprises was driven by the improvement in customers’ economic outlook and increased accounts receivable and inventory financing needs of clients. Meanwhile, respondent banks pointed to lower household consumption amid households’ reduced appetite to spend for big ticket items (similar to the outcome in the Consumer Expectations Survey or CES) and banks' less attractive financing terms as the main factors that contributed to the observed decrease in overall household loan demand.

Over the next quarter, most of the respondent banks expect overall loan demand from both businesses and households to be broadly steady signifying improved economic prospects from enterprises and households as vaccination drives speed up. (6) DI-based results revealed expectations of a net increase in overall loan demand from firms associated mainly with corporate clients’ higher inventory financing requirements and accounts receivable financing needs along with their improved economic outlook. Similarly, the DI approach pointed to banks’ prospects of a net increase in overall loan demand from consumers driven largely by higher household consumption and lower income prospects.

Real Estate Loans

Results from the Q2 2021 survey also showed that majority of respondent banks (71.1 percent) reported broadly unchanged overall credit standards for commercial real estate loans (CRELs). Meanwhile, the DI-based method pointed to a net tightening of overall credit standards for CRELs for the 22nd consecutive quarter. Respondent banks cited a more uncertain economic outlook, a lower tolerance for risk, and deterioration in borrowers’ profile as the key contributors to the tightening of overall credit standards for CRELs for the quarter.

In terms of specific lending standards, the net tightening of overall credit standards for CRELs continued to indicate wider loan margins, reduced credit line sizes, stricter collateral requirements and loan covenants, increased use of interest rate floors, and shortened loan maturities. For the next quarter, banks’ responses continued to point to expectations of net tighter credit standards for CRELs based on the DI approach.

Majority of the respondents reported unchanged demand for CRELs in Q2 2021 as determined by the modal approach. Meanwhile, DI-based results pointed to a slight net increase in demand for CRELs due to a rise in customers' inventory and accounts receivable financing needs, decline in consumers’ internally-generated funds, and improvement in customers’ economic outlook. In the next quarter, modal-based results indicated broadly steady loan demand while DI-based approach showed anticipation of an overall net increase in demand for CRELs. Respondent banks attributed the expected net rise in CRELs largely to clients’ improved economic projections and increased customer inventory financing requirements and accounts receivable financing needs.

On housing loans extended to households, majority of the respondents (65.6 percent) also reported unchanged credit standards while DI-based results presented a net tightening in Q2 2021. Meanwhile, over the next quarter, DI-based results indicated prospects of slight net easing of credit standards for housing loans largely on the back of expected improvement in borrowers’ profiles and more favorable economic prospects.

Majority of respondents reported maintained overall loan demand for housing loans in Q2 2021. However, DI-based results pointed to a net decline in demand for housing loans in Q2 2021 amid a decline in household consumption and housing investment. Nonetheless, survey results pointed to expectations of a net increase in housing loan demand in Q3 2021, reflecting mainly the rising household consumption and investments of banks' clients as well as banks’ more attractive financing terms.

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1 In the modal approach, the results of the survey are analyzed by looking at the option with the highest share of responses.
2 In the DI approach, a positive DI for credit standards indicates that the proportion of respondent banks that have tightened their credit standards exceeds those that eased (“net tightening”), whereas a negative DI for credit standards indicates th?at more respondent banks have eased their credit standards compared to those that tightened (“net easing”).
3 During the Q1 2010 to Q4 2012 survey rounds, the BSP used the diffusion index (DI) approach in the analysis of survey results. Beginning in Q1 2013, the BSP used both the modal and diffusion index (DI) approaches in assessing the results of the survey.
4 The SLOS is similar to the surveys of bank lending standards conducted by other central banks, such as the US Federal Reserve, the European Central Bank, the Bank of England, the Bank of Canada, and the Bank of Japan, among others.
5 Interest rate floor refers to the minimum interest rate set by banks for loans. Increased use of interest rate floors implies generally tighter credit conditions.
6 Results of the BSP’s Q2 2021 Consumer Expectations Survey (CES) indicated improvements in consumer sentiment for Q2 2021, Q3 2021, and the next 12 months. According to respondents, their improved outlook was brought about by their expectations of: (a) more jobs and permanent employment; (b) additional/higher income; and (c) effective government policies and programs, particularly to address COVID-19-related concerns, such as the availability of vaccines, provision of financial assistance, and easing of quarantine restrictions. Meanwhile, results of the BSP’s Q2 2021 Business Expectations Survey pointed to weaker confidence index (CI) for firms compared the previous quarter.

View Table 1 - https://www.bsp.gov.ph/Media_And_Research/Media%20Releases/2021_07/news-07222021a1.pdf
Table 2 - https://www.bsp.gov.ph/Media_And_Research/Media%20Releases/2021_07/news-07222021a2.xlsx
Charts 1 & 2?? - https://www.bsp.gov.ph/Media_And_Research/Media%20Releases/2021_07/news-07222021a3.pdf