BSP sees sustained growth in bank lending in Q2

MANILA, Philippines — Results of the quarterly survey conducted by the Bangko Sentral ng Pilipinas (BSP) showed expectations of a sustained increase in both business and household loans this quarter.

Lara Romina Ganapin, acting deputy director of the BSP’s Department of Economic Research, said results of the Q1 2019 Senior Bank Loan Officers’ Survey showed expectations of a net increase in overall loan demand for both business and household loans.

Respondents were banking on the higher working capital requirements of their corporate clients as well as expectations of higher household consumption, lower interest rates, and banks’ attractive financing terms.

Using the diffusion index (DI) approach, however, Ganapin said results of the survey showed a net increase in loan demand particularly from large middle-market enterprises and small and medium enterprises as well as for credit card loans in the first quarter.

Credit growth eased further to 13.7 percent in February from 15.3 percent in January as disbursements reached P7.93 trillion due to the tightening episode undertaken by the central bank last year.

The BSP’s Monetary Board raised interest rates by 175 basis points in five straight rate-setting meetings between May and November to curb rising inflationary pressures.

However, easing inflation has allowed the central bank to take a breather by keeping rates steady since December. Inflation eased for five straight months to a 15-month low of 3.3 percent in March after peaking at 6.7 percent in September and October.

Inflation finally averaged 3.8 percent in January to March this year after hitting 5.2 percent in 2018 from 2.9 percent in 2017, exceeding the BSP’s two to four percent target due to elevated oil and food prices as well as weak peso.

Ganapin said the DI approach continued to indicate a net tightening of credit standards for both loans to enterprises and households.

She said more respondent banks were expecting overall credit standards for business loans to tighten over the next quarter on expectations of stricter financial system regulations and reduced tolerance for risks.

In the first quarter, most banks reported a net tightening of credit standards, which was attributed by respondent banks to their reduced tolerance for risk, deterioration in the profitability and liquidity of their portfolio, less favorable economic outlook, and perception of stricter financial system regulations.

“In terms of specific credit standards, diffusion index-based results suggested stricter collateral requirements and loan covenants as well as increased use of interest rate floors,” she said.

Ganapin said banks see overall net tightening of credit standards for household loans as respondent banks anticipate a deterioration in borrowers’ profiles and in profitability of banks’ portfolio as well as lower tolerance for risk.

“The overall net tightening of standards for household loans reflected stricter collateral requirements and loan covenants, shorter loan maturities, and increased use of interest rate floors. Respondent banks attributed the tightening of overall credit standards for household loans largely to their reduced tolerance for risk and deterioration in the profitability of their portfolio,” she said.