Bank lending down for second month as lenders, borrowers still averse to risks

MANILA, Philippines — Bank lending contracted for the second consecutive month in January 2021 as both financial institutions and borrowers remained risk averse due to uncertainties caused by the ongoing COVID-19 pandemic, according to the central bank.

In a statement, the Bangko Sentral ng Pilipinas (BSP) said outstanding loans of universal and commercial banks, excluding short term deposits with the regulator, decreased by 2.4 percent during the first month of 2021.

This followed a 0.7-percent decline in December 2020, which marked the first time the amount of loans underwritten by banks contracted since September 2006. Before this, bank loan growth was already on the decline for eight straight months after the outbreak of the COVID-19 public health crisis.

“In general, credit activity remained soft due to weak demand as banks continued to be risk-averse on concerns over asset quality and profitability,” the central bank said.

On a month-on-month seasonally-adjusted basis, outstanding universal and commercial bank loans, net of shot term placements with the central bank, fell by 0.3 percent.

Outstanding loans to residents recorded a slight decline of 1.7 percent, while  outstanding loans to non-residents likewise decreased by 21.6 percent.

Consumer loans contracted by 6.9 percent in January 2021 after increasing by 4.1 percent in December 2020 due to the decline in credit card and motor vehicle loans as well as the slowdown in salary-based consumption loans during the month.

Outstanding loans to key sectors continued to decline, particularly to wholesale and retail trade and repair of motor vehicles and motorcycles (-6.9 percent), manufacturing (-7.4 percent), as well as financial and insurance activities (-6.3 percent).

However, the contraction was tempered by sustained growth in loans to some major production sectors, specifically to real estate activities (5.7 percent), transportation and storage (6.6 percent), construction (4.3 percent), and electricity, gas, steam, and air conditioning supply (3.5 percent).

Loans to other production sectors, likewise, reflected marginal growth following the reopening of business activities especially human health and social work activities (11 percent) as well as accommodation and food services activities (4 percent).

Overall, outstanding loans for production activities declined by 1.1 percent in January from a 0.4-percent decline in the previous month.

Initial data showed that domestic liquidity grew by 9 percent year-on-year to about ₱14 trillion in January 2021.

This was slower than the 9.5-percent growth in December 2020.

The central bank said its accommodative monetary policy stance “continues to complement critical fiscal  and health interventions in supporting economic activity and market sentiment.”

“Looking ahead, the BSP reiterates its commitment to take appropriate measures as needed to ensure ample liquidity and credit, consistent with its mandate to maintain price and financial stability,” the agency said.

TSB