Bank lending shrinks for 3rd straight month

MANILA, Philippines — Loans disbursed by big banks shrank for the third straight month in February amid heightened risk aversion in the banking sector as well as the lack of demand from borrowers due to uncertainties brought about by the pandemic, according to the Bangko Sentral ng Pilipinas.

BSP Governor Benjamin Diokno said preliminary data showed loans extended by universal and commercial banks declined anew by 2.7 percent in February.

“Credit activity eased further as demand for loans remained soft,” Diokno said.

This was the biggest slump for bank lending in more than 14 years or since the 2.9 percent contraction recorded in August 2006.

The mobility restrictions imposed by the government to slow the spread of COVID-19 have greatly affected the lending activity of the banking sector.

Data released by the BSP showed loans released by big banks amounted to P8.94 trillion in end-February, P251 billion lower than the P9.19 trillion recorded in end-February last year.

Lending for production activities shrank further by 1.3 percent, hitting P7.83 trillion in February from a year-ago level of P7.93 trillion.

Disbursements to the real estate sector increased by 5.5 percent to reach P1.77 trillion and accounted for 19.8 percent of the total loan disbursements.

On the other hand, loans for the wholesale and retail trade as well as repair of motor vehicles and motorcycles slumped anew by 6.3 percent to P1.05 trillion,while lending to the manufacturing sector contracted by 5.7 percent to P974.3 billion for a share of 10.9 percent.

The mining and quarrying sector also booked a double-digit 11 percent contraction to P42.74 billion.

On the other hand, loans for the electricity, gas, steam and air-conditioning sector inched up by 3.6 percent to P1.05 trillion.

Diokno said consumer loans contracted further by 8.3 percent to P852.49 billion in February from P929.89 billion in the same month last year.

Credit card loans dropped by 9.6 percent to P405.28 billion amid the rising default by borrowers affected by the COVID pandemic. The BSP’s Monetary Board has imposed a 24 percent ceiling on credit card charges effective Nov. 3 to ease the burden on borrowers.

The BSP also noted an 8.8 percent decline in motor vehicle loans to P354.32 billion from P388.56 billion.

As the banking sector’s non-performing loans ratio continued to rise, resulting in higher provision for potential soured loans, the industry remained risk averse amid uncertainties brought about by the   pandemic.

The transmission of the aggressive 200 basis points interest rate cuts delivered by the BSP last year to cushion the impact of the global health crisis on the economy has yet to translate to higher lending.

Going forward, Diokno said the BSP would keep its monetary policy stance supportive of the government’s measures to address the pandemic.

“The BSP is prepared to take immediate measures as appropriate to ensure ample liquidity and credit in the financial system, consistent with its price and financial stability objectives,” Diokno said.

Meanwhile, the BSP also reported a 9.4 percent rise in money supply (M3) to P13.96 trillion in February, faster than the 8.9 percent expansion in January.

Michael Ricafort, chief economist at Rizal Commercial Banking Corp., said the near double-digit liquidity growth rates in recent months reflect sustained excess peso liquidity in the financial system amid the various liquidity infusion measures by monetary authorities.

Ricafort said liquidity growth likely growth as the retail treasury bond (RTB) offering of the national government siphoned off some of the excess liquidity from the financial system.

“For the coming months, tighter quarantine restrictions since March 22 would lead to a significant reduction in economic/business activities that could also lead to slower demand for bank loans in response to reduced business conditions,” Ricafort said.