Bank lending shrinks the most in 14 years

MANILA, Philippines — Loans disbursed by big banks contracted for the second straight month as the industry remains risk-averse amid the continuing impact of the COVID-19 pandemic, the Bangko Sentral ng Pilipinas (BSP) said.

BSP Governor Benjamin Diokno said preliminary data showed loans extended by universal and commercial banks shrank by 2.4 percent to P8.95 trillion in January, following a 0.7 percent decline in December last year.

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

This was the worst slump for bank lending in more than 14 years or since the 2.9 percent decline in August 2006.

Credit growth has been slowing as the economy stalled during the government-imposed lockdown since March 2020 in a bid to slow the spread of the disease.

However, businesses and consumers remained wary despite the partial reopening of the economy in June when the National Capital Region shifted to a more relaxed quarantine status.

Likewise, banks remained wary of extending more loans despite the aggressive rate cuts by the BSP as the industry’s gross non-performing loan (NPL) ratio eased to 3.61 percent in December after hitting a seven-year high of 3.78 percent in November.

Preliminary data showed lending for production activities shrank by 1.1 percent, hitting P7.83 trillion in January for an 87.5 percent share of the total.

Disbursements to the real estate sector picked up anew by 5.7 percent to reach P1.76 trillion and accounted for 19.7 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, slumped by 6.9 percent to P1.06 trillion for a share of 11.8 percent, while lending to the manufacturing sector shrank by 7.4 percent to P966.73 billion for a share of 10.8 percent.

The mining and quarrying sector booked a 10.3 percent contraction to P42.56 billion.

Loans for electricity, gas, steam and air-conditioning supply, however, increased by 3.5 percent to P1.04 trillion and cornered a share of 11.6 percent.

Likewise, Diokno said consumer loans contracted by 6.9 percent to P861.42 billion in January for a share of 9.6 percent of total loan releases.

The BSP chief noted a 10 percent drop in credit card loans to P405.28 billion amid the rising default by borrowers affected by the COVID-19 pandemic. The central bank’s Monetary Board has imposed a 24 percent ceiling on credit card charges effective Nov. 3 to ease the burden of borrowers.

The BSP also noted a 5.8 percent decline in motor vehicle loans to P361.45 billion.

ING Bank Manila senior economist Nicholas Mapa said the second month of negative loan growth was due to the deep economic recession sapped demand for new loans.

“All signs point to a protracted recovery with investment outlays likely to be sidelined for now,”he said.