As the global economy slipped into recession, Bangko Sentral ng Pilipinas (BSP) officials said yesterday that banks have begun to tighten their credit standards.

In a credit forum hosted by the BSP yesterday, Deputy BSP Governor Diwa Guinigundo said lending standards have tightened in recent months as banks feared the greater tendency of borrowers to default on their loans.

Guinigundo said the BSP conducted a survey of loan officers over the past three months and the results indicated that majority of banks showed moderately tighter lending standards in terms of collateral requirements and credit screening.

“Uncertainty in economic outlook is the main reason for this cautious lending stance,” Guinigundo said. “When I say majority, that is six out of nine banks that we examined.”

According to Guinigundo, credit tightening was a natural reaction of banks in times of uncertainty since they want to be amply protected from the possibility of default which would ultimately hurt their balance sheets.

In 1997 when Asia was hit by the financial crisis, the Philippine banking system suffered significant losses from loan defaults that led to a dramatic accumulation of bad loans.

The non-performing loans ratio of the industry peaked at 25 percent in 2000 as banks reeled from the impact of the 1997 crisis but this ratio has since dropped to 4.5 percent.

But Guinigundo said that as banks reacted to the loss of confidence by tightening up, it also limited the credit channel that transmitted the BSP’s monetary policy down to the real sector.

Guinigundo said the BSP has made several moves, most of them aggressively allowing liquidity to flow into the system from cutting policy rates by 100 points to liberalizing access to its peso repurchase facility as well as opening a dollar repurchase facility.

But Guinigundo said moves already made by the BSP needed to be complemented by an equally aggressive stimulus program of the National Government.

“Fiscal policy should aim to complement monetary easing, not tomorrow but today,” Guinigundo said.

The Arroyo administration is planning to spend P330 billion on its economic stimulus package this year but there would be no incremental spending on top of the budget that was approved before the onset of the global crisis.