Banks kept loan standards unchanged in third quarter
Results of the third quarter Senior Bank Loan Officers’ Survey (SLOS) showed that most respondent banks maintained their credit standards for loans to businesses and consumers based on the modal approach.
Meanwhile, the diffusion index (DI) method indicated a net tightening of credit standards for business loans and household loans.
The third quarter survey results showed that majority of the respondent banks (80.4 percent) kept credit standards for firms steady based on the modal approach. This is a decrease from the second quarter, where 87 percent of banks reported unchanged credit standards.
Meanwhile, the DI approach showed a continued net tightening of credit standards in the third quarter, attributed to the deterioration in borrowers' profiles and the profitability of banks' portfolios.
Over the next quarter, the modal approach suggests that 90.2 percent of respondent banks anticipate maintaining their loan standards for businesses.
However, DI results showed a net tightening of credit standards for the fourth quarter. This expectation is due to the deterioration in borrowers' profiles and in the profitability and liquidity of banks’ portfolios, perception of stricter financial system regulations, and reduced tolerance for risk.
Modal results indicated that a large proportion of banks have maintained their lending standards for household loans in the third quarter (80.0 percent), albeit this is a slightly lower than in the second quarter (84.2 percent).
On one hand, the DI method reflected a net tightening of overall credit standards in the third quarter, following unchanged loan standards in the previous quarter. This net tightening is mainly attributed to the deterioration in borrowers' profiles and in the profitability of banks' portfolios, as well as banks' lower risk tolerance.
For the fourth quarter, the modal results showed that most of respondent banks (82.9 percent) are expecting unchanged household loan standards. Similarly, the DI method indicated banks’ outlook of maintained lending standards amid expectations of unchanged tolerance for risk and stable profiles of borrowers.
The majority of surveyed banks (72.5 percent) indicated unchanged overall demand for business loans in the third quarter as revealed by the modal results.
The share of banks that reported steady demand for business loans during the quarter was marginally higher than in the second quarter (72.2 percent). Meanwhile, the DI method showed a lower net increase in loan demand from businesses in the third quarter compared to the previous quarter. Nonetheless, the net increase in business loan demand during the quarter is due to customers' higher inventory and accounts receivable financing needs, as well as more optimistic economic outlook.
In the following quarter, most of the surveyed banks (56.9 percent) expect broadly steady loan demand from businesses.
Meanwhile, DI results showed that respondent banks anticipate a net increase in credit demand from enterprises in Q4 2024 driven mainly by businesses' higher inventory and accounts receivable financing needs. Bangko Sentral ng Pilipinas
