Banks in the Philippines kept credit standards mostly steady in the fourth quarter of 2022 and expect to continue the trend in the first quarter of 2023, results of the Fourth-Quarter 2022 Senior Bank Loan Officers’ Survey show.
Results of the survey indicated that a higher number of banks maintained their overall credit standards for lending to enterprises and households based on the modal approach.
The diffusion index method, meanwhile, showed a net tightening of credit standards for business loans and unchanged credit standards for consumer loans.
Results in the modal approach are analyzed by looking at the option with the highest share of responses. The three options for the modal approach are either tightening, easing or unchanged credit standards for loans to enterprises and for loans to households.
A positive DI for credit standards, in the diffusion index approach, indicates that the proportion of respondent banks that tightened their credit standards exceeds those that eased, while a negative DI for credit standards indicates that more respondent banks eased their credit standards compared to those that tightened.
A larger proportion of the surveyed banks (80.9 percent) have broadly unchanged lending standards for business loans. Meanwhile, the DI approach reflected a net tightening of overall credit standards across all borrower firm sizes.
Bank participants indicated that the overall tightening of credit standards was largely due to the deterioration of borrowers’ profiles and banks’ portfolios, reduced risk tolerance and a more uncertain economic outlook.
Specific lending standards which reflected the net tightening of overall credit standards include the increased use of interest rate floors, tighter collateral requirements and loan covenants and reduced size of credit lines.
Majority of the respondents expect generally steady credit standards for enterprises in the first quarter of 2023. Meanwhile, the DI-based results reflected an anticipation of net tightening credit standards mainly due to banks’ lower tolerance for risk and deterioration in borrowers’ profiles.
A large proportion of respondents (71.4 percent) kept their credit standards for loans extended to households unchanged in fourth quarter. The DI approach also indicated unchanged overall lending standards for household loans, which was due to a steady economic outlook, maintained risk tolerance and unchanged borrowers’ profiles and profitability of banks’ asset portfolios.
It said that over the next quarter, the modal approach showed a larger proportion of respondents expecting generally steady lending standards. Meanwhile, the DI method indicated bank respondents’ continued expectations of net easing in overall credit standards driven by improvement in borrowers’ profiles and profitability of banks’ portfolios, as well as higher risk tolerance.
