Banks cut margins to draw top clients

MANILA, Philippines – The Bangko Sentral ng Pilipinas (BSP) has noted an increased competition among universal and commercial banks by lowering their margins on loans to top corporations and large middle market enterprises.

Results of the BSP’s first quarter Senior Bank Loan Officers’ survey showed that  banks have narrowed their margin on loans to top corporations as well as large middle market enterprises and at the same time ceased tightening the conditions of their loan contracts to a greater extent compared to the previous quarter for both top corporate and middle market borrowers.

“These findings suggest that, with the improvement in financial market conditions, there may now have been increased competition among commercial and universal banks in vying for a small pool of top-tiered corporate loan accounts, as top corporations are more resilient during a downturn,” the BSP said.

The central bank added that the banks also offered longer maturities for loans to top corporations and middle market enterprises in the first quarter of 2010 compared to the fourth quarter of 2009.

The survey, according to the BSP, indicated that most respondent banks had basically unchanged credit standards.

However, there was a slight increase in the tightening of credit standards that was more pronounced for loans extended to micro enterprises.

“Thus, credit standards have been eased more strongly for top corporations relative to middle-tiered enterprises. Moreover, as solvency concerns have eased, banks have been less reliant on short-term funding, which allowed them to match longer-term loans with longer-term funding as external capital became relatively accessible,” the central bank added.

Latest data from the BSP showed that bank lending grew at a faster pace of 6.1 percent in February compared to a month earlier of five percent as the recovering domestic economy boosted private sector borrowings.

Data showed that total outstanding loans reached P2.084 trillion in February or P121 billion higher than the P1.963 trillion registered in the same month last year.

Lending for production improved to 5.8 percent in February from 4.4 percent in January. Total loans to the productive sectors amounted to P1.862 trillion in February from P1.76 trillion in the same period last year and accounted for about 89 percent of the total outstanding loans.

The BSP also reported that loans for household consumption continued to post a double-digit growth at 12 percent in February slightly lower than the 12.5 percent growth posted in January. Loans for household consumption reached P173.53 billion in February from P154.99 billion in the same month last year.

Auto loans jumped 30.2 percent to P47.02 billion in the February from P35.63 billion in the same month last year while credit card loans went up by 8.2 percent to P111.1 billion from P102.67 billion.

“Banks’ credit standards on loans to households have eased significantly compared to the previous quarter, with the easing more pronounced for credit card loans followed by personal or salary loans and housing loans,” the BSP said.

The survey also showed that competition from other banks was the main factor behind banks’ easing of credit standards as indicated by the overall significant narrowing of loan margins to households.

Nevertheless, banks reported a decline in the net demand for loans by households, with demand more sluggish for personal or salary and credit card loans.

“This may be indicative of households’ other sources of financing, which may be coming from savings or from overseas remittances from the last holiday season,” it added.

The BSP’s bank lending survey is addressed to senior loan officers of Philippine commercial banks. Its main purpose is to enhance the understanding of bank lending behavior in the Philippines.

Economic managers through the Cabinet-level Development Budget Coordination Committee (DBCC) see the country’s domestic output as measured by the gross domestic product (GDP) growing between 2.6 percent and 3.6 percent this year after slackening to 0.9 percent last year from 3.8 percent in 2008 due to the full impact of the global financial crisis. –Lawrence Agcaoili (The Philippine Star)