Philippine banks to tighten lending standards in Q4: survey

Banks cite a deterioration in borrowers’ profiles and their profitability.

More banks in the Philippines expect to tighten their lending standards in Q4, according to data from the Bangko Sentral ng Pilipinas (BSP).

Majority or 80.4% of the 52 respondent banks kept credit standards the same in Q3 2024, the central bank said, based on data from the modal approach. This is lower than in Q2, when 87% of banks retained their credit standards from the previous quarter.

This decline is reflected in the diffusion index model of the study, which showed that more banks reported a “net tightening” of credit standards in Q3.

Banks noted a “deterioration in borrowers' profiles and the profitability of banks' portfolios,” according to BSP.

For Q4, more banks indicated that they will tighten their credit standards, the survey found, attributed to the deterioration in borrowers' profiles and in the profitability and liquidity of banks’ portfolios.

Philippine banks also perceive stricter financial system regulations, and reduced tolerance for risk.

About 80.4% of banks said that they kept credit standards firm for loans to enterprises in Q3.

Almost the same proportion or 80% of banks also maintained credit standards for loans extended to households during the quarter. This is lower than the 84.2% who kept their credit standards for household loans in Q2.

For Q4 2024, most respondent banks expect to keep their credit standards for loans extended to enterprises and households, at 90.2% and 82.9%, respectively, based on the modal approach.

BSP’s survey gathered responses between September 10 to October 15, 2024, with a total of 52 respondents out of 60 surveyed banks.

Two models were used in the survey: the modal approach, which looks at the option with the highest share of responses; and the DI approach.

A positive DI for credit standards indicates that the proportion of respondent banks that have tightened their credit standards exceeds those that eased (net tightening), whereas a negative DI for credit standards indicates that more respondent banks have eased their credit standards compared to those that tightened (net easing).