As BSP keeps foot on brakes, cash supply in PH economy tightens 

MANILA, Philippines – The total value of loans extended by the country’s largest financial institutions rose at a slower rate in February, no thanks to the high interest rate regime imposed by the central bank last year to fight off the highest inflation rates in almost a decade.

As this developed, calls grew for the Bangko Sentral ng Pilipinas (BSP) to loosen monetary policy in the face of easing consumer prices, even as its leaders insist that current interest rate levels remain “appropriate”.

“With the trend of decelerating inflation and tightening liquidity and slowing bank lending, perhaps BSP will soon get enough data points to finally consider easing off the brakes before the entire car comes to a halt,” ING senior economist Nicholas Mapa said in an emailed note to the press after the release of the latest bank lending and money supply figures.

According to the BSP, loans granted by universal and commercial banks, net of short term deposits with the regulator, grew at a slower rate of 13.7 percent in February from 15.3 percent in January.

Likewise, the growth in bank lending inclusive of banks’ short term placements with the BSP decelerated to 13.9 percent in February from 14.5 percent in the previous month.

Loans for production activities – which comprised 88.4 percent of banks’ aggregate loan portfolio, net of bank placements – increased at a slower pace of 13.6 percent in February from 15.5 percent in the previous month.

“The growth in production loans was driven primarily by increased lending to the following sectors: real estate activities (12.0 percent); wholesale and retail trade, repair of motor vehicles and motorcycles (14.6 percent); financial and insurance activities (22.2 percent); manufacturing (13.7 percent); construction (44.4 percent); and, electricity, gas, steam and airconditioning supply (9.4 percent),” the central bank said.

Bank lending to other sectors also increased during the month except that in other community, social and personal activities (-5.1 percent); and, professional, scientific and technical activities (-25.2 percent).

Meanwhile, preliminary data showed that domestic liquidity grew by 7.1 percent year-on-year to about ₱11.5 trillion in February 2019. This was slower than the 7.7-percent expansion in January 2019.

Demand for credit eased but remained the principal driver of money supply growth, the central bank said.

ING’s Mapa said both bank loans and money supply indicators “continue to decline, with domestic liquidity grinding to single digit growth for half a year now while commercial bank lending posting slower and slower growth prints for 4 months straight.”

“It’s a trend,” he declared. “Market players have for some time noted some tightening conditions in domestic liquidity, pointing to both the supply and the demand as data to show this assertion.”