Banks see decline in rediscounted loans

MANILA, Philippines—Loan exchanges by local lenders with the central bank continued to drop last month, data released this week showed.

In a statement, the Bangko Sentral ng Pilipinas (BSP) said rediscounted loans by commercial, thrift, and rural banks fell by 44.1 percent year on year to P16.409 billion at the end of August.

Rediscounted loans are bank receivables that are sold to the central bank for extra funds that can subsequently be lent out to businesses and households.

The Bangko Sentral’s rediscounting facility ensures that, in times of tightness in credit, banks still have funds to lend to productive sectors of the economy.

The BSP said 81.7 percent of the rediscounted loans at the end of the month went to commercial credits, 3 percent went to agricultural and industrial loans, while 15.3 percent went to other sectors.

The drop in rediscounted loans comes as the growth in domestic liquidity in the country continues to accelerate to record highs.

Latest central bank data showed that the country’s money supply, or M3, grew by 30.1 percent at the end of July—the fastest rate in a decade.

The record growth was attributed partly to the exit of non-pooled funds from the BSP’s special deposit accounts (SDA) due to restrictions on individual investors implemented earlier this year.

“That was the time these funds exited the SDAs,” BSP Deputy Governor Diwa C. Guinigundo said in an interview this week. He said when these funds went out of SDAs, these were likely transferred to time deposit accounts or other deposit-like instruments, which are counted in the BSP’s M3 measurements.

“(The high M3 growth) is more temporary than permanent,” Guinigundo said.

This came despite a deceleration in bank lending during the same period. The amount of loans held by banks grew by 11.7 percent at the end of July, slower than the 13-percent growth recorded the month before.

Guinigundo said the slower growth in loans may have been due to the higher earnings of banks and other corporations last year. He said banks and other local companies may have simply reinvested these earnings instead of borrowing money to fund their expansion plans.