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Bank Lending Standards Generally Unchanged in Q3 2010 Relative to Q2 2010


The BSP released today the results of the Q3 2010 Senior Bank Loan Officers’ Survey,1  which showed that most banks had generally unchanged credit standards 2 for the sixth consecutive quarter starting Q2 2009, based on the proportion of banks indicating whether they  tightened, loosened, or maintained credit standards.  However, using the diffusion index approach3,  the survey results indicated an increase in net tightening in credit standards for loans extended to enterprises but no net tightening for loans to households in Q3 2010 relative to Q2 2010.

The survey consists of questions related to the general credit standards of commercial banks in the Philippines, as well as factors affecting the credit supply of and demand for loans by both enterprises and households. The analysis in the survey is based on comparisons with the immediately preceding quarter. The BSP has been conducting this survey since Q1 2009 to enhance the BSP’s understanding of banks’ lending behavior, which is an important indicator of the strength of economic activity. The survey also helps the BSP assess the effectiveness of bank lending as a transmission channel of monetary policy.

Lending to Enterprises

Classified according to firm size, the net tightening of general credit standards increased for top corporations but declined for large middle-market enterprises. Meanwhile, banks ceased tightening credit standards for small and medium-sized as well as for micro enterprises.

The responses of banks indicated overall net tightening in terms of loan margins, collateral requirements, loan covenants, and loan maturities. However, the results also showed a net increase in credit lines for all firm sizes, except for micro enterprises, for which respondents reported unchanged credit lines from the previous quarter.

Looking at the external and bank-specific factors affecting banks’ credit standards, in spite of the reported strong growth of the domestic economy in the first semester and the robust activity in the stock market, banks’ outlook on the economy and certain industries (notably real estate, renting, and business services) has become less certain, probably due to indications of tepid demand recovery for the global economy. This development, in addition to banks’ reduced tolerance for risk, contributed to the increase in net tightening of overall credit standards for enterprises.

Lending to Households

Banks had basically unchanged credit standards for the sixth consecutive quarter for loans extended to households. Comparing the number of respondents declaring tighter credit standards to those that indicated the opposite, there was no net tightening of credit standards overall and across all types of household loans4,  except for personal/salary loans (which reflected a lower net tightening). Increased competition from other banks as well as non-bank lenders was cited as contributing to the zero net tightening of overall credit standards to households.

For specific credit standards, a bigger proportion of respondents reported a narrowing of loan margins overall and across all types of household loans. Respondents also reported unchanged credit lines for most types of loans. Collateral requirements (except for housing loans) remained the same in Q3 relative to the previous quarter for all types of loans. Collateral requirements and loan covenants for housing loans were stricter, which is consistent with survey responses indicating that the outlook for real estate, renting, and business activities contributed to the tightening of credit standards to enterprises.

Loan demand

The survey results also pointed to a stronger overall increase in net demand5   for loans from enterprises compared to the previous quarter. Demand increased across all firm sizes, except for micro enterprises. Among the key reasons cited by respondent banks for the net increase in demand for loans by enterprises were firms’ upbeat outlook for the domestic economy going forward, lower interest rates, improved terms of financing by banks, and lack of other sources of financing.

For household loans, banks reported a stronger increase in net demand for housing and auto loans. The higher demand for auto loans is consistent with the double-digit growth of total vehicle sales in the first two months of Q3 2010. Meanwhile, net demand for credit card loans and personal/salary loans was unchanged.
The net increase in demand for loans is consistent with the stronger growth in bank lending during the first two months of the quarter.


1  Survey questions were sent to 35 commercial banks, with 25 banks responding, for a response rate of 71 percent. Commercial banks’ loans account for around 85 percent of the banking system’s total outstanding loans.      
2 Prior to the Q1 2010 survey, the BSP looked only at the mode of responses in interpreting the results of the survey, i.e., the number of banks that tightened, loosened, or maintained credit standards. Since Q1 2010, the BSP started analyzing the results of the survey by looking at the percentage difference (“diffusion index”) between banks reporting that credit standards have been tightened and those reporting that they have been eased. 
3  A positive diffusion index indicates that more banks tightened credit standards compared to those that eased (“net tightening”), whereas a negative diffusion index indicates that more banks eased credit standards compared to those that tightened (“net easing”). 
4 Loans extended to households include: (1) housing loans; (2) credit card loans; (3) auto loans; and   (4) personal/salary loans.
5  “Net demand” refers to the percentage difference between banks reporting an increase in loan demand and banks reporting a decrease. Net demand will therefore be positive if more banks reported an increase in loan demand compared to those stating the opposite, whereas it will be negative if more banks reported a decrease in loan demand compared to those reporting an increase.

View Annex 1Annex 2

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