PH economy awash with cash, but lockdown crimped May loan growth, says BSP

MANILA, Philippines – Bank loans grew at a slower pace in May as the Philippine government’s quarantine measures meant to slow the spread of the coronavirus pandemic prevented more fresh credit from being underwritten despite lower interest rates, according to the central bank.

In a statement, the Bangko Sentral ng Pilipinas said its preliminary data showed that outstanding loans of universal and commercial banks — excluding their short-term deposits with the regulator — grew by 11.3 percent in May.

“The deceleration reflects in part constrained economic activity following the imposition of quarantine measures to contain the COVID-19 outbreak,” the central bank said, adding that this pace was slower than the 12.7-percent expansion in April.

On a month-on-month seasonally-adjusted basis, commercial bank loans net of deposits with the central bank decreased by 0.5 percent.

Loans for production activities grew by 9.8 percent in May from 11.1 percent in the previous month.

The continued growth in production loans was driven primarily by lending to real estate activities (19.6 percent); financial and insurance activities (13.9 percent); electricity, gas, steam and air conditioning supply (8.6 percent); information and communication (24.9 percent); and transportation and storage (20.4 percent).

Bank lending to other sectors also increased during the month, except for mining and quarrying (-5.6 percent), professional, scientific, and technical services (-23.4 percent), and manufacturing (-3.2 percent).

Growth in loans for household consumption likewise grew at a slower pace of 30.2 percent in May compared to 33.3 percent in April due to the slowdown in credit card and motor vehicle loans during the period.

“Amid the challenge of keeping credit flowing to affected businesses and households, the BSP has adopted a range of measures to support bank lending, including a further reduction of the policy rate to complement the various liquidity-enhancing and regulatory measures,” the central bank said.

“The BSP expects credit activity to pick up in the coming months, as economic activity resumes with the gradual reopening of the economy,” it added.

Meanwhile, preliminary data showed that domestic liquidity grew by 16.6 percent year-on-year to about ₱13.7 trillion in May.

This was faster than the 16.2 percent expansion in April. On a month-on-month seasonally-adjusted basis, the amount of liquidity circulating in the financial system increased by 0.6 percent.

“The continued stabilization of domestic liquidity conditions has given the BSP some room to gradually rescale its monetary operations while maintaining the accommodative stance of monetary policy,” the central bank said, adding that this will help its earlier liquidity measures gain further traction by providing better guidance to short-term market interest rates.

“Going forward, the BSP will remain vigilant in monitoring liquidity and credit dynamics amid significant disruptions to economic activity,” it said. [ac]