Bank lending drops in December

MANILA, Philippines — Loans disbursed by big banks contracted in December last year, ending more than a decade of credit growth in the country due to uncertainties brought about by the COVID-19 pandemic, the Bangko Sentral ng Pilipinas (BSP) reported yesterday.

BSP Governor Benjamin Diokno said preliminary data showed loans extended by universal and commercial banks declined by 0.7 percent to P9.18 trillion in December.

“Overall, lending remained tepid as banks continued to be risk-averse amid the ongoing pandemic,” Diokno said.

Credit growth has been slowing as the economy stalled when Luzon was placed under lockdown in  mid-March to slow the spread of the virus.

The last time bank lending contracted was in September 2006 with 1.9 percent.

However, businesses and consumers remain wary despite the partial reopening of the economy in June last year.

Likewise, banks are also wary of extending more loans despite the aggressive rate cuts by the BSP as the industry’s gross non-performing loan (NPL) ratio hit the  highest level in more than seven years at 3.81 percent in end-November  last year from 3.72 percent in October last year.

ING Bank senior economist Nicholas Mapa said the deep economic recession sapped demand for new loans.

“The weakening of lending activity also forced domestic liquidity growth to decelerate, with M3 growth slowing to single digit growth of 9.5 percent,” Mapa said.

With NPLs on the rise and the job market in shambles, Mapa said bank lending would remain in contraction for the next couple of months as both consumer and corporate demand may be subdued given the gloomy economic outlook.

“Shrinking bank lending points to sustained weakness in the economy’s fundamentals with capital formation, a key sector of the Philippines’ recent growth story, expected to stay in the red in the coming quarters,” Mapa said.

“Missing the extra punch coming from capital formation, growth prospects continue to hint at a sluggish recovery path, despite headline grabbing 2021 GDP growth rates,” Mapa said.

Economic managers penned a GDP growth of 6.5 to 7.5 percent this year and eight to 10 percent next year.

“The drive to return to pre-pandemic levels of GDP will likely be pushed back further to end 2022 or early 2023 with capital formation impaired by floundering consumer and business sentiment,” Mapa said.

According to the BSP, lending for production activities shrank by 0.4 percent to  P8.04 trillion in December from a year-ago level of P8.07 trillion.

Disbursements to the real estate sector also picked up by 5.3 percent to reach P1.77 trillion, accounting for 19.2 percent of the total loan disbursements.

On the other hand, loan releases to the wholesale and retail trade, as well as repair of motor vehicles and motorcycles, contracted further by 6.8 percent to P1.11 trillion for a share of 12.1 percent, while lending to the manufacturing sector shrank by 5.2 percent to P993.75 billion for a share of 10.8 percent.

On the other hand, loans for electricity, gas, steam and air-conditioning supply increased by 3.8 percent to P1.04 trillion and cornered a share of 11.4 percent.

Likewise, Diokno said the growth in consumer loans further slowed to 4.4 percent to P875.99 billion in December last year from P839.25 billion in the same month in 2019.