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Bank Lending Standards Generally Unchanged in Q4 2010 Relative to Q3 2010


The BSP released today the results of the Q4 2010 Senior Bank Loan Officers’ Survey,1   which showed that most banks had generally unchanged credit standards for the seventh consecutive quarter starting Q2 2009, based on the proportion of banks indicating whether they  tightened, loosened, or maintained credit standards.2   However, using the diffusion index approach,3   the survey results indicated an overall net tightening in credit standards for loans extended to enterprises. Meanwhile, for loans to households, all of the respondents reported that, in general, credit standards were unchanged in Q4 2010 relative to Q3 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 its 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

With regard to firm size, banks reported a net tightening of general credit standards for large middle-market enterprises, consistent with the overall net tightening of credit standards. However, overall credit standards for top corporations and small and medium enterprises showed no net change4   while those for micro enterprises were unchanged5   for the second consecutive quarter.

Respondent banks’ specific credit standards6   showed an overall net tightening in terms of collateral requirements, loan covenants, and loan maturities. However, respondents indicated a net narrowing of loan margins and a net increase in the size of credit lines overall as well as for top corporations.

Looking at the external and bank-specific factors affecting banks’ credit standards, the overall net tightening in credit standards was due to banks’ less optimistic outlook on the economy, due largely to concerns on the effects of adverse weather conditions on the agricultural sector, and indications of weak global demand recovery. Banks likewise cited reduced tolerance for risk as a contributing factor in the net tightening of overall credit standards for enterprises.

Lending to Households

Banks had basically unchanged credit standards overall and across all types of household loans,7   except housing loans (which reflected a net easing). Respondent banks reported no change in terms of collateral requirements, loan covenants, and loan maturities overall as well as for most types of household loans. The reported net easing of overall credit standards for housing loans can be traced to narrower loan margins, increased size of credit lines, and less strict collateral requirements. Stable access to market financing and competition from other banks as well as non-bank lenders contributed to the unchanged credit standards for household loans.

Loan demand

The survey results also pointed to a net increase in demand8   for loans from enterprises compared to the previous quarter. Demand increased across all firm sizes, except for micro enterprises, which was unchanged from the previous quarter. Among the more important reasons for the net increase in demand for loans by enterprises were the lower interest rates, higher cash flow requirements, and lack of access to other sources of financing.

For loans to households, banks likewise indicated a net increase in demand for all types of loans. Moreover, the higher demand for auto loans was consistent with the solid growth of passenger car and commercial vehicle sales in Q4 2010.

The overall net increase in demand for household and corporate loans was consistent with the sustained growth in bank lending during the first two months of the quarter for which data are available.


1  Survey questions were sent to 35 commercial banks, with 21 banks responding, for a response rate of 60.0 percent. As of June 2010, commercial banks’ loans accounted for around 86 percent of the banking system’s total outstanding loans.      

 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. 

 A positive diffusion index indicates that more banks have tightened their credit standards compared to those that eased (“net tightening”), whereas a negative diffusion index indicates that more banks have eased their credit standards compared to those that tightened (“net easing”). 

 “No net change” means that the percentage of banks that tightened credit standards is the same as the percentage of banks that eased credit standards.

5  “Unchanged credit standards” means that no bank has reported tightening or easing of credit standards.

 The survey questionnaire identified five specific credit standards: (1) loan margins (price-based); (2) collateral requirements; (3) loan covenants; (4) size of credit lines; and (5) length of loan maturities.  

7 Loans extended to households include: (1) housing loans; (2) credit card loans; (3) auto loans; and (4) personal/salary loans.

 “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 Table 1  |  Table 2

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