BANK OF JAPAN
Results of the Q3 2021
At the same time, results shown by the diffusion index (DI) approach2,3 continued to reflect a net tightening of overall credit standards for loans to enterprises and households during the quarter.
ABOUT THE SURVEY
The BSP has been conducting the SLOS since 2009 to gain a better understanding of banks' lending behavior, which is an important indicator of the strength of credit activity in the country. The survey also helps the BSP assess the robustness of credit demand, prevailing conditions in asset markets, and the overall strength of bank lending as a transmission channel of monetary policy.4 The survey consists of questions on loan officers' perceptions relating to the overall credit standards of their respective banks, as well as to factors affecting the supply of and demand for loans to both enterprises and households.
The analysis of the results of the SLOS focuses on the quarter-on-quarter changes in the perception of respondent banks. Starting with the Q3 2018 survey round, the BSP expanded the coverage of the survey to include new foreign commercial banks and large thrift banks. Prior to Q3 2018, the survey covered only universal and commercial banks. In the Q3 2021 survey round, survey questions were sent to a total of 64 banks (42 universal and commercial banks and 22 thrift banks), 51 of whom sent in their responses, representing a response rate of 79.7 percent.
Respondents' inputs for the Q3 2021 SLOS were gathered amid the government's reimposition of quarantine measures to address the outspread of COVID-19 infection rates since
DETAILS OF THE SURVEY RESULTS
Lending to Enterprises
Using the modal-based approach, initial results showed that most of the respondent banks (70.8 percent) stated generally unchanged overall credit standards for loans to enterprises in Q3 2021. However, results of the DI-based method revealed a net tightening of lending standards across all borrower firm sizes (specifically top corporations, large middle-market enterprises, small and medium enterprises, and micro enterprises). Respondent banks conveyed that the reported tightening of overall credit standards was mainly due to a deterioration in the profiles of borrowers and in the profitability of banks' portfolio, a less favorable economic outlook, and a reduced tolerance for risk, among other factors.
On specific credit standards, the net tightening of overall credit standards was evident in terms of reduced credit line sizes; stricter collateral requirements and loan covenants; and increased use of interest rate floors.5 However, some form of easing in lending standards was identified in terms of longer loan maturities.
For Q4 2021, while majority of the respondent banks generally anticipate unchanged overall credit standards for loans to businesses, DI-based results pointed to expectations of net tighter standards given the following factors: an uncertain economic outlook, a deterioration of borrowers' profiles and in the liquidity of banks' portfolio, and banks' decreased tolerance for risk.
Lending to Households
Most respondent banks (69.4 percent) retained their overall credit standards for loans extended to households in Q3 2021. On the other hand, DI-based results specified a net tightening of overall credit standards for household loans, particularly for housing, auto, and personal/salary loans while results for credit card loans showed easing lending standards.6 Respondents associated the overall tightening of credit standards for consumer loans with a less favorable economic outlook, a deterioration in borrowers' profile, and a reduced tolerance for risk.
For specific credit standards, the overall net tightening of credit standards to households was manifested in reduced credit line sizes, stricter loan covenants, and collateral requirements. Meanwhile, partial easing of lending standards for loans to consumers was reflected in forms of narrower loan margins and longer loan maturities.
Over the next quarter, the modal approach showed that majority of the respondent banks expect to maintain their overall credit standards. Contrary to this, DI-based results indicated that respondent banks anticipate further net easing of overall credit standards for household loans, influenced by the expected improvements in borrowers' profiles and positive economic prospects.
Loan Demand
Results for the Q3 2021 survey indicated that majority of the respondent banks reported an overall steady loan demand from both businesses and consumers. By contrast, DI-based results pointed to a net increase in overall demand for business loans across all major loan categories while a net decline in demand for all key categories of household loans was observed (particularly credit card loans, auto loans, and personal or salary loans).
As identified by the respondent banks, the slight net increase in loan demand from enterprises was induced by the increased inventory financing needs of clients and accounts receivable as well as the improvement in customers' economic outlook. Meanwhile, respondent banks pointed to lower household consumption, banks' less attractive financing terms, and higher interest rates as the main elements that influenced the reported fall in overall consumer loan demand.
For the following quarter, majority of respondent banks anticipate generally steady loan demand from firms and consumers, signaling the improvement in market sentiment brought about by the continued rollout of COVID-19 vaccines and the gradual easing of quarantine restrictions.7 Results from the DI method show expectations of a net increase in overall loan demand from businesses which were largely attributed to corporate clients' higher inventory financing requirements and accounts receivable financing needs as well as improvement in customers' economic outlook. Likewise, the DI approach pointed to banks' outlook of a net increase in overall loan demand from consumers driven by higher household consumption, lower income prospects, and banks' more attractive financing terms.
Real Estate Loans
Latest survey results also showed that most of the respondent banks (75.0 percent) stated generally steady overall credit standards for commercial real estate loans (CRELs). Meanwhile, the DI-based approach reflected a net tightening of overall credit standards for CRELs for the 23rd consecutive quarter. Respondent banks mentioned a decreased tolerance for risk, deterioration in borrowers' profile, and a more uncertain economic outlook as significant factors to the tightening of overall credit standards for CRELs in Q3 2021.
Regarding specific credit standards, the net tightening of overall lending standards for CRELs was attributed to wider loan margins, reduced credit line sizes, stricter collateral requirements and loan covenants, increased use of interest rate floors, and shortened loan maturities. Over the following quarter, the DI approach indicated expectations of net tighter credit standards for CRELs.
In Q3 2021, a larger portion of the respondents stated unchanged demand for CRELs using the modal approach. However, DI-based results pointed to a marginal net increase in demand for CRELs given the lower interest rates and a decline in customers' internally-generated funds. For Q4 2021, the modal approach showed expectations of a generally unchanged loan demand while DI-based results stated the respondents' prospects of an overall net rise in demand for CRELs. Respondent banks associated the expected net increase in CRELs mainly to customers' improved economic outlook and lower interest rates.
On housing loans extended to households, a larger portion of respondents (71.9 percent) also indicated unchanged lending standards while DI-based approach identified a net tightening in Q3 2021. Over the next quarter, DI-based results anticipate a net easing in lending standards for housing loans, driven by the expected improvements in borrowers' profiles and more favorable economic prospects.
A higher percentage of respondents indicated that overall loan demand for housing loans in Q3 2021 was kept unchanged. On the other hand, DI-based results revealed a net increase in housing loan demand during the quarter amid the rise in household consumption, housing investment, and lower interest rates. Nevertheless, survey results stated expectations of a net increase in housing loan demand in Q4 2021 in anticipation of banks' more attractive financing terms, lower interest rates, and consumers' increasing housing investments.
1 In the modal approach, the results of the survey are analyzed by looking at the option with the highest share of responses.
2 In the DI approach, a positive DI for credit standards indicates that the proportion of respondent banks that have tightened their credit standards exceeds those that eased ('net tightening'), whereas a negative DI for credit standards indicates that more respondent banks have eased their credit standards compared to those that tightened ('net easing').
3 During the Q1 2010 to Q4 2012 survey rounds, the BSP used the diffusion index (DI) approach in the analysis of survey results. Beginning in Q1 2013, the BSP used both the modal and diffusion index (DI) approaches in assessing the results of the survey.
4 The SLOS is similar to the surveys of bank lending standards conducted by other central banks, such as the US Federal Reserve, the
5 Interest rate floor refers to the minimum interest rate set by banks for loans. Increased use of interest rate floors implies generally tighter credit conditions.
6 Lending standards on credit card loans reportedly eased amid the issuance of BSP Memorandum Circular No. 1098 which sets a ceiling rate of 24 percent per annum on the interest or finance charge that can be imposed on all credit card transactions (except credit card installment loans). In
7 Latest results of the BSP's Q3 2021
View Table 1? | Table 2
Charts 1 & 2
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