Bank lending seen to remain subdued

MANILA, Philippines — Lending by Philippine banks is expected to remain soft as the economy may stay below pre-pandemic levels until the second half of next year, according to Standard Chartered Bank.

Chidu Narayanan, economist for Asia and the Philippines at Standard Chartered, said credit has remained soft as lending to corporates shrank by 2.9 percent.

Likewise, Narayanan said lending to households also continued to decline.

“That is a concern. We think it will remain soft at least through 2022, which means that the central bank will keep policy very accommodative,” he said.

The Bangko Sentral ng Pilipinas (BSP) has unleashed P2.2 trillion, equivalent to 12.14 percent of gross domestic product (GDP), into the financial system through various COVID-19 response measures.

However, data from the central bank showed loans released by big banks contracted for the sixth straight month after shrinking by four percent in May as corporate activity remains muted with the emergence of new COVID-19 variants.

“Credit growth is a function of the sentiment in the market as well as the capacity levels. Corporates are significantly overcapacity given that they had planned capacity expectations as of end-2019,” he said.

The Philippines slipped into recession with a record 9.6 percent GDP contraction last year as the economy stalled when the government placed the entire Luzon under enhanced community quarantine in mid-March last year to slow the spread of COVID-19 infections.

Standard Chartered slashed its 2021 GDP growth forecast for the Philippines to 4.6 percent. It sees the economy expanding by 6.6 percent in 2022 and 5.9 percent in 2023.

“The central bank will keep policy very accommodative. We think that they will retain it at current accommodative levels until the growth starts to pick up. We think the Philippines will remain below 2019 levels of activity all through 2021 and through most of 2022,” Narayanan said.

Just like other central banks, BSP Governor Benjamin Diokno earlier said monetary authorities in the country would remain patient in lifting monetary accommodation given the continued downside risks caused by the COVID-19 pandemic as it remains watchful against any potential spillovers that may arise from the policy actions of the US Federal Reserve.

“At this point, however, we believe that many central banks, including the Fed, are likely to remain patient in lifting monetary accommodation given the continued downside risks to output and to provide support to economic recovery amid the COVID-19 health crisis,” Diokno said.

The BSP chief reiterated monetary authorities are ready to adjust the country’s policy settings as necessary to ensure that their primary mandate of price stability conducive to a balanced and sustainable economic growth is achieved.

“Broadly speaking, the BSP can consider withdrawing monetary support when there are indisputable indications of a strong recovery in real sector activity, as well as a sustained downtrend in community transmission of the virus,” Diokno said.