Philippine banks more wary of lending to companies

Borrowers’ net profiles and profitability reportedly deteriorated in Q2.

Philippine banks mostly kept their credit standards unchanged in the second quarter of 2024, according to a survey by the local central bank.

However, the same survey noted a tightening of credit standards to enterprises and indicated that banks are planning to become stricter on who they lend out to in the third quarter.

Almost 9 in 10 (87%) of banks said that they retained their credit standards in the April to June period, according to the Q2 2024 Senior Bank Loan Officers’ Survey by the Bangko Sentral ng Pilipinas (BSP), using the modal approach.

In contrast, using the diffusion index (DI) method, BSP observed a net tightening of credit standards in Q2 compared to Q1 due to the deterioration of borrowers' profiles and profitability of banks' portfolios.

Banks anticipate a net tightening in credit standards in Q3, noting further deterioration in borrowers' profiles, and in the profitability and liquidity of banks’ portfolios. 

For loans extended to households, over 8 in 10 (84.2%) of banks said that they maintained their credit standards in Q2. This is higher than in Q1, when 77.1% of banks indicated the same.

The DI method also reflected unchanged credit standards during the quarter, which BSP said was thanks to the stable profiles of borrowers and banks’ unchanged tolerance for risk.

Over 8 in 10 (81.6%) of banks expect their household loan standards to remain unchanged in Q3.

The Philippines’ central bank uses two methods to gauge credit standards: first is the modal approach, which looks at the option with the highest share of responses. BSP uses three options for its modal approach: tightening, easing, or unchanged.

The DI approach, meanwhile, is based on the proportion of banks who tightened their credit standards versus those that eased. A positive DI indicates that the proportion of banks that tightened their credit standards exceeded those that eased; whereas a negative DI indicates that more respondent banks have eased their credit standards compared to those that tightened.