Bank lending shrinks for 7th straight month

MANILA, Philippines —  Loan disbursements by big banks shrank for the seventh straight month, although at a slower pace of two percent in June from four percent in May, as the spread of the COVID-19 Delta variant continued to temper outlook for economic recovery.

Latest data released by the Bangko Sentral ng Pilipinas (BSP) showed the outstanding loans of universal and commercial banks amounted to P9.09 trillion in June, P187.86 billion lower than the P9.28 trillion recorded in the same period last year.

BSP Governor Benjamin Diokno said bank lending is still weak  as concerns over the spread of new coronavirus variants continued to dampen market sentiment and the outlook for economic recovery.

“Credit activity remains weak, as measures to address the still elevated number of COVID-19 cases constrained domestic economic activity and continued to dampen market sentiment,” Diokno said.

He said banks remained risk-averse as the industry’s gross non-performing loan (NPL) ratio increased further to 4.5 percent in May from 4.4 percent in April.

“Lockdown restrictions inhibited the ability of households and firms to meet their financial obligations and as a result, the NPL coverage ratio of the banking system declined to 80 percent in May from 81.5 percent in April,” he said.

Data showed lending for production activities declined at a slower pace of 0.6 percent, hitting P8.02 trillion in June from a year-ago level of P8.07 trillion for an 88.2 percent share of the total.

Loans released to the real estate sector increased by 4.8 percent to P1.8 trillion, while lending to the electricity, gas, steam and air-conditioning supply sector inched up by 2.2 percent to P1.04 trillion.

On the other hand, loans to the wholesale and retail trade as well as repair of motor vehicles and motorcycles slumped by 6.2 percent to P1.07 trillion, while lending to the manufacturing sector dropped by 5.8 percent to P992.49 billion.

The BSP also reported an 8.6 percent decline in household lending to P818.96 billion in June from P895.59 billion in the same month last year.

Credit card loans slipped by 2.5 percent to P400.11 billion due to the rising default by borrowers affected by the COVID-19 pandemic, while motor vehicle loans slowed by 14.8 percent to P329.09 billion.

The BSP chief said there are still risks to the country’s growth outlook as the presence of the Delta variant might give rise to renewed restrictions, similar to what is happening in select cities in Asia, Europe and Oceania.

Malacañang announced that the National Capital Region (NCR) would revert to the strictest enhanced community quarantine from Aug. 6 to 20 to slow the spread of the more contagious COVID Delta variant.

“Although risks remain amid the discovery of new COVID variants, recent macroeconomic developments have shown encouraging signs that economic recovery is underway,” Diokno said.