Banks to keep credit standards amid ME conflict

BANKS expect to keep their lending standards this quarter as they see steady demand for credit despite the impact of the Middle East (ME) war, a Bangko Sentral ng Pilipinas (BSP) survey showed.

“Results of the latest quarterly Bangko Sentral ng Pilipinas Senior Bank Loan Officers’ Survey (SLOS) show that most banks are likely to apply the same standards they have been using in assessing loan applications for both businesses and households,” the central bank said in a statement.

“Most banks in the Philippines expect to maintain their existing lending standards in Q2 2026, suggesting credit expansion is likely to continue supporting the Philippine economy amid the global impact of the Middle East conflict.”

Lending standards refer to the rules banks use when giving loans, like interest rates, loan size, collateral, loan conditions, and repayment terms.​

The survey showed that 65.7% of banks expect to keep their standards for extending household loans this quarter. However, this was lower than the 77.8% recorded in the previous period.

Meanwhile, 28.6% of respondents expect to tighten their credit standards for households, up from 16.7% in the first quarter. Some 5.7% expect to loosen, broadly steady from 5.6% previously.

For business loans, 61.5% of the respondent banks said their standards will stay unchanged, lower than 71.2% in the previous three-month period.

Some 30.8% said they will tighten rules for lending to businesses this quarter, up from 26.9% the prior period, while 7.7% expect to ease their standards, rising from just 1.9% previously.

Through the SLOS, the BSP analyzes the quarter-on-quarter changes in banks’ loan officers’ perceptions of their overall credit standards and the factors affecting loan supply and demand.

It uses both the modal approach, which requires a categorical response, and the diffusion index (DI) method, which reflects the net difference between the respondents’ answers.

Under the DI method, a net 22.9% of respondents expect to tighten their standards for household loans this quarter. This was higher than the net 11.1% in the first quarter.

Meanwhile, a net 23.1% of banks expect to impose stricter lending standards for businesses. This was slightly lower than the net 25% seen in the previous period.

“The survey points to stable credit conditions for now, with banks maintaining lending standards and expecting steady demand. But there are early signs of a tightening bias especially as rising costs may weaken household repayment capacity,” John Paolo R. Rivera, a senior research fellow at the Philippine Institute for Development Studies, said via Viber.

He added that the industry become more selective about granting loans and tighten their credit standards gradually if external pressures persist.

Banks could become more cautious as the Middle East conflict raises inflation concerns, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message, as higher prices of goods will dent borrowers’ capacity to repay their debt, which would pose asset quality risks to banks.

LOAN DEMAND
Meanwhile, 53.8% of respondents see steady loan demand from businesses this quarter, according to the modal approach. This was lower than 67.3% in the first quarter.

The survey also showed that 34.6% expect loan demand from enterprises to increase, while 11.5% expect it to decrease.

For household loans, 52.9% of banks see steady credit demand in the April-to-June period, lower than the 62.9% in the previous quarter.

Meanwhile, 23.5% expect household loan demand to increase in the second quarter, and the remaining 23.5% see a decrease.

On the other hand, using the DI method, a net 23.1% of banks expect increased loan demand from enterprises in the period, up from the net 1.9% in the first quarter.

Meanwhile, the survey yielded a net 0% for household loan demand in the second quarter, down from the net 2.9% increase expectation in the previous three-month period. — Aaron Michael C. Sy