Credit growth slows to 12.7% in April

MANILA, Philippines — Credit growth slowed down in April, ending five straight months of faster loan disbursements as containment measures such as the enhanced community quarantine to limit the spread of the coronavirus disease or COVID-19 outbreak took its toll on economic activity, according to the Bangko Sentral ng Pilipinas (BSP).

Preliminary data released by the central bank showed that loans extended by universal and commercial banks increased by 12.7 percent to P9.47 trillion in April from P8.41 trillion in the same month last year as Luzon was placed under quarantine to slow the spread of the virus.

The latest figure was slower than the revised 13.6 percent in March.

“The deceleration reflects in part constrained economic activity following the Luzon-wide lockdown to contain COVID-19 outbreak,” the BSP said.

The BSP has undertaken COVID-19 measures, including slashing interest rates by 125 basis points to a record low of 2.75 percent and lowering the reserve requirement ratio by 200 basis points to 12 percent so far this year.

Loans for production activities booked a double-digit growth of 11 percent to P8.24 trillion in April from P7.42 trillion in the same month last year. The sector accounted for 88.2 percent of the total loans disbursed by big banks.

Loan disbursements to the real estate sector jumped by 20.8 percent to P1.73 trillion in April while releases to the wholesale and retail trade, as well as repair of motor vehicles and motorcycles inched up by 2.7 percent to P1.17 trillion.

Likewise, loans for water supply, sewerage, waste management and remediation activities grew by 11.2 percent to P1.04 trillion.

However, the BSP data showed loan releases for the manufacturing sector contracted by 1.3 percent to P1.08 trillion in April.

Household loans zoomed by 33 percent to P919.74 billion in April from P689.98 billion in the same month last year.

The increase in credit card loans slowed to 41 percent to P434.19 billion from P307.75 billion, while auto loans also grew by a slower 30.8 percent to P389.97 billion from P298.06 billion.

The BSP noted a sharp 12.8 percent rise in salary-based general-purpose consumption loans to P78.69 billion, while other loans grew by 17.2 percent to P16.88 billion due to a lull in economic activity as Filipinos were forced to stay home to limit the spread of the disease.

The BSP expects credit activity to pick up in the coming months as economic activity resumes with the gradual reopening of the economy.

Domestic liquidity conditions have stabilized with the implementation of various liquidity-enhancing measures by the BSP that freed up P1.1 trillion in additional funds in the financial system.

Moreover, the BSP’s various regulatory relief measures should help reinforce banks’ capacity for sustained lending, especially to affected households and businesses.

Michael Ricafort, chief economist at Yuchengco-led Rizal Commercial Banking Corp. (RCBC), said the slowdown in credit growth cold be attributed to the sharply reduced business and economic activities.

Ricafort also cited the reduced demand for loans as many businesses and industries experienced sharp decline in production and sales.

“Thus, some companies reduced capital expenditures in response to the sharp reduction in business or economic activities at the height of the lockdown in April, thereby reflecting in demand for loans for the month,” Ricafort said.