Most Philippine banks expect to maintain their lending standards in the third quarter, indicating the banking system’s stability and capacity to support the economy through credit despite persistent geopolitical uncertainty.

Banks generally expect lending standards to remain unchanged in the third quarter, with 75.5 percent of respondents indicating no change in credit standards for enterprise loans and 80 percent expecting stable standards for household loans. These are improvements from the responses in the second quarter, when a smaller percentage of banks noted unchanged credit standards.

For those expecting credit standards to tighten, survey responses suggest a moderation in the tightening bias among banks for loans to both enterprises and households. Meanwhile, there are a few banks anticipating lending standards to ease in the third quarter for loans to enterprises.

Overall, the results point to broadly stable credit conditions reflecting continued prudence in credit risk assessment amid an evolving economic environment.

These results are based on the modal method, which gauges the direction of banks’ credit standards—whether banks will tighten, ease, or maintain their credit standards.

Another method is the diffusion index, which is the difference between the percentage of respondents that expect to tighten (positive) and the percentage of those that expect to ease (negative). The percentage of those that expect standards to be unchanged is disregarded.

The corresponding diffusion index for both businesses and households remained positive, indicating a net tightening bias. Respondents cited a less favorable or more uncertain economic outlook, reduced risk tolerance, and a deteriorating borrower profile as factors that could lead them to tighten credit standards.

Results based on the modal method indicate that 64.2 percent of respondent banks expect demand for enterprise loans to remain unchanged in the third quarter, while 30.2 percent expect it to increase and 5.7 percent expect it to decline.

Compared with the second quarter, fewer banks expect demand to remain unchanged or decline, while more expect it to increase. The expected increase in enterprise loan demand may be attributed to higher customer inventory financing needs, higher accounts receivable financing needs, and an improved customer economic outlook.

Meanwhile, banks expecting higher household loan demand cited stronger household consumption, lack of other sources of funds, higher housing investment, and more attractive bank financing terms as the key drivers. Bangko Sentral ng Pilipinas