Bank lending contracts for first time in 12 years last December as risk aversion lingers

MANILA, Philippines—After slowing down for eight straight months in 2020, bank lending finally contracted in the final month of last year as the COVID-19 pandemic made banks even more gun-shy about releasing new loans.

In a statement, the Bangko Sentral ng Pilipinas (BSP) said preliminary data showed outstanding loans of universal and commercial banks – excluding short term deposits with the central bannk—declining by 0.7 percent in December after increasing by 0.5 percent in November.

This marked the first time bank lending contracted in the country since September 2006, according to historical data provided by the BSP.

“Overall, lending remained tepid as banks continued to be risk-averse amid the ongoing pandemic,” the central bank said.

Loans to residents registered a marginal increase, but this was more than offset by the 20.3-percent drop in outstanding loans to non-residents.

Under loans to residents, consumer loans grew at slower a rate of 4.4 percent in December from 7.1 percent in November due to the slowdown in credit card loans, motor vehicle loans, and salary-based consumption loans during the month.

Loans to some major production sectors expanded, particularly to real estate activities (5.3 percent); electricity, gas, steam, and air conditioning supply (3.8 percent); human health and social work activities (49.2 percent), information and communication (5.3 percent), and transportation and storage (5 percent).

However, outstanding loans to key sectors continued to decrease, especially to wholesale and retail trade and repair of motor vehicles and motorcycles (-6.8 percent); manufacturing (-5.2 percent); as well as financial and insurance activities (-4.6 percent).

On balance, outstanding loans for production activities declined by 0.4 percent in December following the 0.7-percent growth in November.

In a note to reporters, ING Bank Manila senior economist Nicholas Mapa said the ongoing deep recession is sapping demand for new loans.

He pointed out that the December 2020 decline was the first time bank lending contracted since the 2008 global financial crisis, although central bank data show the last loan level decline occurred two years earlier than that.

“With non-performing loans on the rise and the job market in shambles, we can expect bank lending to remain in contraction for the next couple of months as both consumer and corporate demand may be subdued given the dour economic outlook,” he said.

The central bank said its monetary policy stance “remains accommodative in support of credit demand as a complement to fiscal initiatives which remain crucial in ensuring public welfare and directly supporting spending by firms and households.”

“Looking ahead, the BSP reassures the public of its commitment to deploy its full range of monetary instruments as necessary to ensure ample liquidity and credit, in line with its mandate to maintain price and financial stability,” it said.

TSB