BSP to set credit standards in Q1

THE Bangko Sentral ng Pilipinas (BSP) said credit standards for corporate loans are likely to tighten this quarter, while those for household loans are expected to ease based on its latest survey.

In its 4th Quarter 2021 Senior Bank Loan Officers’ Survey, the central bank reported that the diffusion index (DI) approach showed “anticipation of net tighter standards mainly due to less favorable economic outlook and deterioration of borrower’s profile.”

In the DI method, 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 that more respondent banks have eased their credit standards compared to those that tightened (“net easing”), it explained.

The BSP also said that the diffusion indices pointed to fewer banks expecting a net tightening of lending requirements in the first quarter of this year in comparison to survey results from the first quarter of 2020 to fourth quarter of 2021.

Amid positive economic forecasts and expected improvements in borrower profiles, the DI-based results further suggested that respondent banks see overall credit benchmarks for consumer loans to continue to be net easing.

Meanwhile, the Bangko Sentral noted the results of the DI approach also reflected expectations of a net increase in overall loan demand from businesses, which were primarily associated with clients’ improved economic outlook as well as increased inventory and accounts receivable financing needs.

A similar result of the DI method was that banks anticipated a net rise in overall consumer loan demand as a result of more favorable financing terms and higher household expenditure.

As an important indicator of a country’s credit activity, the survey has been conducted since 2009, the central bank pointed out, in order to gain a better understanding of bank lending behavior.

“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,” it said.