The BSP released today the results of the Q2 2011 Senior Bank Loan Officers' Survey,1 which showed generally unchanged bank credit standards for the ninth 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 indicated an overall net tightening of credit standards for loans to enterprises, while credit standards for loans to households showed an overall net easing in Q2 2011 relative to Q1 2011.
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 overall net tightening of credit standards for loans to enterprises reflected the banks' less optimistic outlook on the economy and certain industries. This is in line with the results of the Q2 2011 BSP Business Expectations Survey which showed a positive but less buoyant business confidence index for the current quarter relative to Q1 2011 on account of rising global commodity prices and adverse external developments. Banks' reduced tolerance for risk and access to market financing also contributed to the net tightening of credit standards to enterprises in the second quarter.
With regard to firm size, banks reported a net tightening of credit standards for loans to large middle-market and small and medium enterprises (SMEs), consistent with the overall net tightening of credit standards. However, credit standards for loans to top corporations have been unchanged since Q1 2011. Likewise, the results indicated unchanged credit standards for loans to micro enterprises for the fourth consecutive quarter.
In terms of specific credit standards,4 loan maturities for large middle-market enterprises appeared to have shortened. Meanwhile, banks indicated an overall net easing of standards on collateral requirements and loan covenants. Likewise, banks' standards on loan margins and sizes of credit lines have been eased for most firm sizes. Survey results have been showing a net narrowing of loan margins since Q4 2010 while credit line sizes have been exhibiting a net increase since Q2 2010 particularly for top corporations and large middle-market enterprises.
Lending to Households
The survey results indicated a net easing of credit standards for loans to households,5 reflecting the net easing of standards for housing and credit card loans. Meanwhile, banks' credit standards for auto and personal/salary loans showed a net tightening. Improved profile of borrowers, as well as increased competition from other banks or non-bank lenders contributed to the easing of standards for housing loans.
The banks' responses regarding specific credit standards showed unchanged standards on the size of credit lines, collateral requirements, and loan maturities across all types of household loans, except housing loans. For housing loans, meanwhile, most of the specific credit standards have been eased, except loan margins, which were unchanged from the previous quarter.
The survey results also pointed to a sustained positive net change in loan demand 6from enterprises (except micro enterprises) and households (particularly for housing and auto loans). The net increase in demand for loans from both enterprises and households could be traced to still upbeat expectations of borrower firms and households about the general economic activity, the generally low interest rate environment, and higher cash flow requirements.
The overall positive net change in demand for household and corporate loans was consistent with the steady pick-up in bank lending growth during the first two months of Q2 2011 for which data are available.
Special questions on commercial real estate loans
For the Q2 2011 survey round, specific questions on commercial real estate loans were included for the BSP to have a better sense of banks' views on the property sector. Most of the respondent banks reported unchanged credit standards for commercial real estate loans in Q2 2011 relative to Q1 2011. Using the diffusion index approach, however, credit standards showed a net tightening. Meanwhile, banks' loan-to-value ratios for commercial real estate loans (which ranged from 50 percent to 80 percent) have been unchanged from the previous quarter.
1 Survey questions were sent to 35 commercial banks, with 21 banks responding, or 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. Meanwhile, the banks that responded to the Q2 2011 survey accounted for 79.0 percent of the total universal and commercial bank loans for May 2011.
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 "Net change in loan demand" refers to the percentage difference between banks reporting an increase in loan demand and banks reporting a decrease. A positive net change in loan demand indicates that more banks reported an increase in loan demand compared to those stating the opposite, whereas a negative net change in loan demand implies that more banks reported a decrease in loan demand compared to those reporting an increase.
View Table 1 | Table 2