BSP sees bank lending returning to growth path in Q3

MANILA, Philippines — Bank lending would likely return to growth mode in the third quarter, with hopes pinned on further easing of pandemic restrictions and mass vaccinations to ease lingering risk aversion among lenders and borrowers.

“Survey shows that consumer and business confidence point to more optimism in the next few quarters. That’s where the situation is,” Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno said in an interview with ABS-CBN News Channel on Monday. “To me, the vaccination program is the game changer here.”

If realized, the BSP chief’s projection would mark a reversal of downtrend in credit growth that has reached a new nadir in April, all while banks continue to accumulate unpaid loans. It’s a dangerous combo blocking central bank efforts to bring cash to pandemic-stricken consumers and businesses who need them the most.

Despite interest rates already at historic low, outstanding loans of big banks collapsed 5% year-on-year in April, marking the fifth straight month of decline. It was the worst drop since the 7.2% recorded in June 1999 in the aftermath of the Asian Financial Crisis, data showed.

Part of the reason for the worsening downtrend borrowers’ hesitation to incur more debt over fears of being burdened with too much liabilities at a time the pandemic is roiling job markets. This was worsened by banks’ growing pile of soured loans that have resulted into tighter credit standards.

Data showed soured loans accounted for 4.21% of lenders’ entire loan books as of March, the highest in 11 years. Already, the local banking industry sees bad debts they hold, as a share of their entire loan portfolio, increasing to “above 5%” this year.

But Diokno is still optimistic that a “manageable” rise of bad debts, coupled with hefty buffers against losses, would convince banks to lend again. “Majority of banks estimate that the NPL (non-performing loan) ratio will remain relatively low or manageable, and this will be accompanied by high loan loss provisions,” he told Philstar.com in a text message.

“The key to economic recovery is the success in the vaccination program. The success in the jab program will bring about business and consumer confidence which are essential in economic recovery,” he added.

Nicholas Antonio Mapa, senior economist at ING Bank in Manila, agreed with Diokno’s forecast. “Just like everything in 2020, base effects will feature prominently after bank lending saw a steady deceleration in 2020 owing to the pandemic.  June was the first month of single digit growth before overall lending crashed into negative territory by year end,” Mapa said in an e-mail.

“We could see bank lending improve by end-third quarter with the timing of the recovery largely tied to how quickly the economy can start to resemble its past 6% growth self,” he added.