The BSP released today the results of the Q1 2011 Senior Bank Loan Officers' Survey,1 which showed generally unchanged bank credit standards for the eighth consecutive quarter starting Q2 2009, based on the percentage of banks indicating whether they tightened, loosened, or maintained their credit standards.2 Using the diffusion index approach,3 the survey results showed that for loans to enterprises, all banks reported unchanged credit standards for all firm sizes in Q1 2011 relative to Q4 2010. However, the survey indicated an overall net tightening of credit standards for loans to households, reflecting the tightening of credit standards for personal and salary loans.
The survey consists of questions related to the general credit standards of commercial banks in the Philippines, as well as factors affecting the supply of and demand for loans by both enterprises and households. The analysis in the survey is based on comparisons with data for 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 domestic economic activity. The survey also helps the BSP assess the effectiveness of bank lending as a transmission channel of monetary policy.
Lending to Enterprises
The unchanged overall credit standards for enterprises in Q1 2011 suggest that banks had ceased tightening their credit standards after the continued net tightening recorded in the past quarters.
Based on banks' responses regarding specific credit standards,4 overall credit standards for loans to enterprises during the quarter were unchanged as the reported net easing of standards on loan margins and sizes of credit lines offset the observed net tightening in terms of collateral requirements, loan covenants, and loan maturities.
Looking at the external and bank-specific factors affecting banks' credit standards, the unchanged overall credit standards for loans to enterprises was due to the stable outlook for certain industries and steady access to market financing of banks.
Lending to Households5
The reported net tightening of credit standards overall and for personal and salary loans can be traced to the reduced size of credit lines and shortened loan maturities6 . However, banks reported unchanged credit standards for housing loans following a net easing recorded in the previous quarter. Banks' credit standards for auto loans were also unchanged for the second consecutive quarter since Q4 2010 while standards for credit card loans showed a net easing.
Respondent banks reported no change in terms of collateral requirements and loan covenants and recorded narrower loan margins overall as well as for all types of household loans.
The survey results also pointed to a sustained positive net change in demand7 for loans from enterprises (overall) and households, particularly for housing loans. Upbeat expectations about the general economic activity, the low interest rate environment, attractive terms of financing offered by banks, and higher cash flow requirements contributed to the net increase in demand for loans from both enterprises and households.
The overall positive net change in demand for household and corporate loans was consistent with the sustained growth in bank lending during the first two months of 2011 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 September 2010, commercial banks' loans accounted for around 85.5 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 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").
4 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.
5 Loans extended to households include: (1) housing loans; (2) credit card loans; (3) auto loans; and (4) personal/salary loans.
6 Only one bank reported a tightening of credit standards. The net tightening of credit standards overall and for personal and salary loans was attributed to the economic outlook, financial system regulations, tolerance for risk, and borrowers' profile.
7 "Net change in demand" refers to the percentage difference between banks reporting an increase in loan demand and banks reporting a decrease. A positive net change in demand indicates that more banks reported an increase in loan demand compared to those stating the opposite, whereas a negative net change in demand implies that more banks reported a decrease in loan demand compared to those reporting an increase.
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