Banks maintain credit standards

MOST banks either maintained or tightened credit standards for business and household loans during the first quarter of the year depending on how data from a survey of loan officers is analyzed, the Bangko Sentral ng Pilipinas (BSP) said on Friday.

Based on a modal approach, where results are analyzed by looking at the option with the highest share of responses, majority of participating banks maintained credit standards. But using the diffusion index (DI) method, there was a net tightening of standards as more banks said that standards had become stringent compared to those who replied otherwise.

The BSP said that 81.8 percent of respondents reported that they retained their credit standards for businesses based on the modal approach, lower than the 83.3 percent in the previous quarter. "Banks tightened their loan standards for enterprises due to the deterioration in borrowers' profile and profitability of banks' portfolio," the BSP said.

For the next quarter, meanwhile, 85.5 percent of respondent banks expect generally unchanged lending standards for enterprises using the modal approach.

As for household loans, fewer banks maintained their credit standards for household loans in the first quarter compared to the last three months of 2024: 86.8 percent from 89.5 percent.

Using the DI method, there was a general net tightening for household lending compared to the previous quarter, and banks were said to have done so due to deteriorating borrower profiles, decreased risk tolerance and a deterioration in the profitability of the bank's portfolio.

Majority or 82.1 percent expected unchanged credit standards for households in the next quarter, modal results showed, but the DI method found that respondents were anticipating a net tightening.

Meanwhile, 67.3 percent reported that overall demand for enterprise loans remained steady in the first quarter, but was lower than the previous three months' 74.1 percent. On the other hand, higher customer inventory financing needs and more optimistic economic views among clients showed a net increase in firms' loan demand based on the DI method.

Modal results showed that 61.8 percent of banks anticipate steady overall loan demand from businesses for the upcoming quarter. DI results, however, showed that banks expect a net increase in demand, driven by increased short-term financing needs, more optimistic client economic outlooks and greater customer inventory financing needs.

Banks continued to report an unchanged consumer loan demand in the first quarter based on modal-based results, but the percentage fell to 71.8 percent from the 73.7 percent in the fourth quarter of last year.

The DI method, meanwhile, showed a net increase in demand for household loans.

For the next quarter, 66.7 percent anticipate stable demand for household loans, while DI findings showed that banks anticipate a net increase as a result of growing consumption and improved credit terms.