Bank lending growth at slowest pace in 14 years

MANILA, Philippines — Bank lending continued to slide this year, growing at its slowest pace in 14 years as banks remained cautious amid uncertainties caused by the pandemic and a rising number of soured loans.

According to preliminary data from the Bangko Sentral ng Pilipinas (BSP), loans extended by universal and commercial banks, net of reverse repurchase (RRP) placements, grew 1.9 percent to P8.96 trillion in October from P8.8 trillion in the same month last year.

This is slower than the 2.6 percent growth in September and marks the slowest pace of growth since bank lending declined by 1.9 percent in September 2006.

On a month-on-month, seasonally adjusted basis, outstanding loans from big banks declined by 0.4 percent, according to the central bank.

“The overall slowdown in bank lending growth reflects the combined effects of muted business confidence and banks’ stricter loan standards attributed mainly to continued disruptions in business operations,” the BSP said.

Michael Ricafort, chief economist at Rizal Commercial Banking Corp. (RCBC), said banks adopted tighter bank credit standards and risk aversion, in view of the rising non-performing loans (NPL) amid a pandemic-induced economic slowdown.

In September, the gross NPL ratio of the banking sector rose to a seven-year high of 3.4 percent as restructured and past due loans continued to soar.

BSP data showed that loan growth for production activities slowed to two percent in October from 2.3 percent in September, reaching P7.83 trillion from P7.67 trillion a year ago.

Outstanding loans to the manufacturing sector contracted by 3.6 percent to P998.41 billion from P1.04 trillion a year ago, while loan releases to wholesale and retail trade, including the repair of motor vehicles and motorcycles, dropped by 4.3 percent to P1.09 trillion from P1.14 trillion.

On the other hand, disbursements to the real estate sector grew by 6.8 percent to P1.71 trillion from P1.61 trillion.

Loans to households expanded by eight percent to P870.04 billion in October, albeit at a slower pace than the 9.8 percent reported in the previous month. The BSP said this was driven by the slowdown in credit card and motor vehicle loans, as well as salary-based general purpose consumption loans.

Amid sluggish credit growth, the BSP said the growth in domestic liquidity--as measured by M3-- eased in October.

During the month, money supply expanded by 11.8 percent to P13.54 trillion from P12.11 trillion last year. This was slower than the 12.2 percent growth figure the previous month.

Domestic claims grew by 7.9 percent to P13.44 trillion in October, albeit at a slower pace than the 8.1 percent expansion in the previous month as bank lending remained tepid.

Meanwhile, net borrowings by the central government was broadly steady at 46 percent in October from 45.9 percent in September.

The year-on-year expansion of net foreign assets (NFA) accelerated to 23.3 percent in October, following a 20.5-percent growth in September.

“The stance of monetary policy of the BSP remains accommodative given the benign inflation outlook and stable inflation expectations. The recent additional easing will serve to complement fiscal measures in supporting domestic demand, with targeted fiscal spending and government health initiatives in place to counteract risk aversion and weak credit demand,” the BSP said.

Ricafort said further easing of quarantine measures in Metro Manila would help support economic recovery and in turn, result in some pick up in loan demand.

“Near record low interest rates or borrowing costs amid continued monetary easing measures would help spur demand for loans by businesses, consumers, and other institutions,” he said.