Home Forex Bank lending drops for 2nd month in a row

Bank lending drops for 2nd month in a row

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LOANS disbursed by big banks declined for a second consecutive month in January, as lenders remained risk-averse amid the coronavirus pandemic.

Outstanding loans by big banks fell 2.4% to P8.952 trillion in January from P9.175 trillion a year earlier, preliminary data from the Bangko Sentral ng Pilipinas (BSP) released on Tuesday showed.

This followed the 0.7% slip in December, which was the first decline since September 2006 when lending dropped by 1.9%.

“In general, credit activity remained soft due to weak demand as banks continued to be risk-averse on concerns over asset quality and profitability,” the central bank said in a statement.

Inclusive of reverse repurchase agreements, bank lending was down 2.2% in January.

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“We are still in a pandemic and this consecutive decline was likely expected by many market watchers and other analysts. So, as long as we do not see any improvements regarding economic recovery, we may continue to see a lackluster bank lending,” UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said in an e-mail.

Borrowings for production activities declined by 1.1% in January, following a 0.4% decrease in December.

“Cost-cutting measures by some businesses/industries fundamentally resulted in some reduction in loan demand,” Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a note.

BSP data showed a drop in loans disbursed to key industries, such as manufacturing (-7.4%), wholesale and retail trade and repair of motor vehicles and motorcycles (-6.9%), and the financial and insurance sector (-6.35%).

There was also a decline in loans for sectors such as mining and quarry (-10.3%); water supply, sewerage, waste management, and remediation activities (-5.7%); agriculture (-5.1%); information and communication (-0.2%); professional, scientific and technical services (-39.9%); administrative and support services activities (-12.9%); and education (-4.9%).

On the other hand, increases were seen in loans for real estate activities (5.7%); transportation and storage (6.6%); construction (4.3%); electricity, gas, steam, and air-conditioning supply (3.5%); human health and social work activities (11%); and accommodation and food services activities (4%).

The BSP said the marginal growth reflected the reopening of more businesses, as the government eased some restrictions.

During the month, household loans also sank by 6.9%, reversing the 4.1% year-on-year growth in December, as credit card loans (-10%) and motor vehicle loans (-5.8%) slumped.

Banks have tightened their credit standards to avoid a pile-up in soured loans. The banking industry’s nonperforming loan ratio stood at 3.61% as of end-December, rising from the 2.08% a year earlier. It reached 17.6% in the aftermath of the Asian Financial Crisis in 2002.

Republic Act No. 11523 or the Financial Institutions Strategic Transfer (FIST) Act which allows FIST corporations to offload bad loans and assets from banks was signed into law last month.

“The FIST passage is a very welcome development moving forward. Its passage is timely and very much needed to help improve bank lending prospects,” Mr. Asuncion said.

ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa said double-digit bank lending growth prior to the pandemic was instrumental in driving investments in the country.

“With bank lending now looking entrenched in negative territory, it looks as if the Philippine economy will need to find other sources of growth with capital formation sidelined in the near term,” Mr. Mapa said in a note.

M3 SLOWS FURTHER
As lending contracted, money supply registered its eighth consecutive month of slower growth.

M3 — which is considered as the broadest measure of liquidity in an economy — grew by 9% in January following a 9.5% growth in December, the BSP said in a separate statement on Tuesday. Month on month, M3 rose 0.7%.

In January, domestic claims rose 5% from 4.5% in December.

Net borrowings of the central government expanded 39%, picking up from the 31.1% rise in the prior month.

Meanwhile, net foreign assets increased by 21.8%, easing from the 25.5% expansion in December.

Net foreign assets held by other depository corporations grew by 32.5%, significantly slower than December’s 72.9% print.

“Looking ahead, the overall stance of monetary policy is expected to remain accommodative in order to complement ongoing fiscal and health initiatives to support economic activity and market confidence,” the central bank said.

The BSP in February maintained the overnight reverse repurchase, lending, and deposit facilities at record lows of 2%, 2.5%, and 1.5%, respectively. The Monetary Board will have its next rate-setting meeting on March 25.

“I do not think that the BSP will do anything drastic in the near term. Of course, they are still committed to an easing theme and any reversal of such stance, I think, is still very far from today,” Mr. Asuncion said.

Last year, the BSP slashed rates by 200 basis points to support the virus-stricken economy. However, lending growth remained tepid amid the crisis.

Mr. Diokno has said they will remain accommodative until the economy recovers its pre-pandemic growth trajectory. — Luz Wendy T. Noble

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