PHILIPPINE DAILY INQUIRER - August 25, 2009

<< back to news

Banks stop tightening credit standards

LOCAL BANKS HAVE STOPPED tightening their credit standards in the second quarter, encouraged by reports that the worst of the global economic turmoil was over.

This was according to the Bangko Sentral ng Pilipinas, which regularly monitors changes in the lending requirements imposed by banks on potential borrowers.

“Lending standards have become steady in the second quarter; there was no more tightening,” BSP Deputy Governor Diwa Guinigundo told reporters.

Reports that the worst of the global economic crisis was over injected confidence among banks to allow easier access of individuals and corporate entities to credit.

Developments related to bank-lending requirements in the second quarter were contrary to those in the previous quarters when banks tightened their credit standards, like asking for higher-value collateral from credit applicants and imposing more stringent documentary requirements.

The stiffer requirements were imposed following the onset of the global economic crunch, which banks feared could adversely affect the capability of borrowers to pay their debts.

The BSP, however, said the tightening of credit standards did not mean a lost of appetite among banks to lend. Bank lending continued to grow at a double-digit level, but the expansion came at a slower pace than that seen last year.

According to central bank documents, outstanding loans extended by commercial banks in the country amounted to P2.2 trillion as of end-June, up 11.1 percent from a year ago.

Growth in bank lending hovered beyond 20 percent last year.

Guinigundo said the move of banks to stop tightening credit standards was a welcome development, but he stressed that banks should contribute more to efforts at boosting the economy by accelerating lending.“It will benefit them [banks] in the end if they will lend more,” Guingundo said.

In its bid to encourage bank lending, the BSP has cut its key policy rates by 200 basis points from December last year to July. The overnight borrowing and lending rates of the BSP now stand at 4 and 6 percent.