Banks restrict lending despite margin of safety

MANILA, Philippines - Philippine lenders have already tightened loan policies, making it difficult for prospective clients to borrow funds for their business expansion. Despite being previously considered “safe" from the effects of the US financial meltdown, local institutions have taken additional measures to ensure their financial stability. This much was admitted by Bangko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco Jr in a recent text message. “As in the other jurisdictions, credit standards by individual banks may become stricter, depending on each bank's situation," Tetangco said on Monday. He also gave assurances that lending—an indicator of economic growth—continues to increase although at a slower pace. Nevertheless, the lending slowdown “is a natural reaction" to current events, Pascual M. Garcia, President of the Philippine Savings Bank, the thrift lender of Metropolitan Bank and Trust Co., the country’s second-largest bank. Garcia’s sentiment was shared by Gil Buenaventura, executive vice president of the Bank of the Philippine Islands, in a previous interview. Since credit may be less available this year, lenders are expecting a “slight compression" in target profits during the period, Buenaventura said. Despite expectations of a lending slowdown, Tetangco said that the BSP is looking at ways to improve data collection on lending and other information to predict financial threats. “What we are looking at now have to do with the question of getting other information and what data we should be collecting to improve future threats analysis," Tetangco said. He added that current policies have served their purposes and that it may be too early to propose immediate changes. In 2004, the BSP introduced policies on structured products—also known as derivative instruments—allowing banks and investors to put their money in these vehicles. However, institutions have been discouraged from investing in these products since these require some degree of financial sophistication. And this, to some degree, also explains why derivative investments have not caught on in the Philippines, BSP assistant governor Ma. Dolore Yuvienco said. - GMANews.TV