Bank lending ends 8-month slump, grows 1.3% in August

MANILA, Philippines — Banks finally got the better end of record-low interest rates as lending recovered with a 1.3 percent growth in August, ending eight straight months of contraction, according to the Bangko Sentral ng Pilipinas.

BSP Governor Benjamin Diokno said the credit growth recorded by universal and commercial banks in August reversed the 0.7 percent contraction booked in July.

“This is the first reported expansion in outstanding loans of universal and commercial banks after eight consecutive months of contractions amid improvements in sentiment brought about by the continued rollout of COVID-19 vaccines and the gradual easing of quarantine restrictions,” he said.

The central bank has kept an accommodative monetary policy stance anchored on record-low interest rates to boost economic activity, but banks remained risk-averse due to uncertainties brought about by the global health crisis.

The BSP chief reiterated that the central bank would continue to provide the appropriate monetary policy support to allow the momentum of economic recovery to gain more traction in line with its price and financial stability mandates.

“Together with the national government’s fiscal and health interventions, the BSP’s prevailing accommodative monetary policy stance should help boost domestic demand and market confidence in support of economic activity,” Diokno said.

Preliminary data showed loans disbursed by big banks amounted to P9.2 trillion in end-August from P9.08 trillion in August last year.

Nicholas Mapa, senior economist at ING Bank Manila, said bank lending would continue to improve further in the coming months as monetary stimulus take effect, with renewed credit activity driving a resurgence in capital formation.

“Bank lending showed a pulse in August, eight months after the last round of BSP policy rate reductions. Given the nature of monetary policy, any action taken by the BSP will generally need a good six to nine months before feeding through to the real economy,” Mapa said.

The economist noted that the Monetary Board may opt to gradually normalize policy rates, with its first adjustment happening in the second quarter of next year.

“The expected lag from BSP rate cuts has finally been able to manifest in bank lending numbers with the aggressive policy accommodation finally bearing fruit. With limited evidence of a buildup in asset price bubbles, BSP deemed it necessary to help provide the economy an added boost to growth given the ongoing economic recession,” he said.

BSP managing director Zeno Ronald Abenoja said loans for production activities increased by 3.1 percent to P8.14 trillion and accounted for 88.4 percent of total lending in end-August.

This was despite the fact that Metro Manila and nearby provinces were placed under enhanced community quarantine anew in August due to the resurgence of COVID-19 cases caused by the highly transmissible Delta variant.

Loans released to the real estate sector grew faster at 7.2 percent to reach P1.83 trillion and accounted for 19.9 percent of total disbursements, while lending to the manufacturing sector finally increased by two percent to P1.04 trillion for a share of 11.3 percent.

Likewise, loans to the electricity, gas, steam and air-conditioning supply sector inched up by two percent to P1.03 trillion for an 11.2 percent share.

On the other hand, loans to the wholesale and retail trade as well as repair of motor vehicles and motorcycles contracted at a slower pace of two percent to P1.06 trillion, for a share of 11.7 percent.

Abenoja, on the other hand, noted that consumer loans remained subdued, contracting by 8.1 percent to P806.23 billion in August for a share of 8.8 percent of total loans.

Despite the improving default rate of borrowers as the economy recovers from the impact of the pandemic, credit card loans slipped anew by 1.4 percent to P402.07 billion from P405.78 billion.

Likewise, motor vehicle loans fell by 15.6 percent to P316.01 billion from P374.57 billion.