MOST Philippine banks maintained their credit standards for both business and consumer loans in the first quarter of 2025, according to the Bangko Sentral ng Pilipinas (BSP), signaling continued confidence in borrower quality and economic stability.
However, select indicators suggest a cautious tightening in lending practices, particularly for households.
The BSP’s latest Senior Bank Loan Officers’ Survey (SLOS) revealed that 81.8 percent of surveyed banks kept their lending standards for enterprises unchanged, slightly down from 83.3 percent in the previous quarter. Despite this, the diffusion index (DI) — a broader gauge of market sentiment — indicated a net tightening in credit standards due to concerns over borrower risk profiles and lower portfolio profitability.
Looking ahead to the second quarter, 85.5 percent of banks expect to retain current credit standards for enterprises, reflecting stable expectations around the economic environment and borrower risk tolerance.
Consumer lending
On the consumer front, 86.8 percent of banks reported no change in credit standards in the first quarter of 2025, a slight drop from 89.5 percent in the previous quarter. However, the DI approach pointed to a net tightening of household loan criteria. Banks cited a weaker borrower profile, reduced risk appetite and shrinking margins as key factors.
For the upcoming quarter, 82.1 percent of lenders project steady consumer loan standards.
Nonetheless, DI results suggest continued caution among banks, driven by expectations of further deterioration in borrower profiles and portfolio performance.
Loan demand rebounding
Despite relatively tighter credit conditions, demand for loans appeared to rebound in the first quarter. The modal approach showed that 67.3 percent of banks observed steady business loan demand, down from 74.1 percent in the fourth quarter of 2024. However, the DI pointed to a net increase, attributed to stronger inventory financing needs and growing
business optimism.
For the second quarter of 2025, 61.8 percent of banks expect enterprise loan demand to remain stable, while DI data anticipates a continued net rise, fueled by firms’ short-term financing requirements and positive economic sentiment.
Household loan demand also remained resilient. The modal method revealed that 71.8 percent of banks saw unchanged demand, slightly down from 73.7 percent in the prior quarter. Yet the DI approach indicated a net increase in demand, supported by more attractive lending terms and increased consumer spending.
Looking forward, 66.7 percent of banks expect steady household credit demand, with DI indicators forecasting further growth as consumer confidence and bank financing options improve.
The SLOS findings suggest that while banks are largely maintaining credit access, they remain vigilant amid evolving borrower dynamics and profitability concerns.
With loan demand showing signs of recovery, the results highlight cautious optimism within the banking sector as it navigates a still-shifting economic landscape. / KOC