Households, firms hit with tighter lending rules
Credit to Author: MAYVELIN U. CARABALLO, TMT| Date: Fri, 26 Apr 2019 16:25:03 +0000
BANKS on the whole tightened lending standards for businesses and households during the first three months of the year, the Bangko Sentral ng Pilipinas (BSP) reported on Friday.
“[T]he diffusion index (DI) approach continued to indicate a net tightening of credit standards for both loans to enterprises and households,” the central bank said as it released results of its First Quarter 2019 Senior Bank Loan Officers Survey.
Net tightening of credit standards for enterprises was largely attributed by banks that participated in the poll to their perception of stricter financial system regulations and reduced tolerance for risk.
“In terms of specific credit standards, DI-based results suggested stricter collateral requirements and loan covenants, shortened loan maturities, and increased use of interest rate floors,” the BSP said.
More banks expect overall credit standards for businesses to tighten over the next quarter, on the back of banks’ expectations of stricter financial system regulations and more uncertain economic outlook, among others.
Meanwhile, net tightening of credit standards for household loans were observed for housing, auto and personal/salary loans.
“The overall net tightening of standards for household loans reflected stricter loan covenants and increased use of interest rate floors,” the central bank said.
The banks, it added, attributed the tightening largely to their perceptions of stricter financial system regulations and reduced tolerance for risk.
Credit standards are expected to be tigthened over the next quarter as banks anticipate stricter financial system regulations and lower tolerance for risk.
At the same time, results also showed increased demand for business and housing loans in the first quarter, as well as expectations of a sustained increase in demand for such loans in the second.
“The net increase in demand for business loans was attributed by respondent banks to their customers’ higher working capital requirements and investment in plant or equipment, as well as banks’ more attractive financing terms during the quarter,” the Bangko Sentral said.
On housing loans, the banks attributed the growth to higher household consumption and the low interest rates they offered, among others.
Conducted since 2009, the survey helps the BSP enhance its understanding of banks’ lending behavior, an important indicator of the strength of credit activity in the country.
It also helps assess demand conditions, potential risks in asset markets, and possible strains in bank lending as a transmission channel of monetary policy.
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