Bank lending contraction enters 4th month despite liquidity spike in March

MANILA, Philippines—The contraction in Philippine bank lending continued for the fourth month in a row, with the amount of loans underwritten falling by the largest amount so far last March since the coronavirus pandemic began, according to the Bangko Sentral ng Pilipinas (BSP).

In a statement, the BSP cited preliminary data showing that outstanding loans of universal and commercial banks — excluding short term deposits they made with the regulator—decreased by 4.5 percent in the third month of 2021.

The latest decline follows the 2.7-percent fall in February — a trend that began in December 2020, following eight consecutive months of weakening loan growth as the COVID-19 crisis dampened appetite for risk from both borrowers and lenders.

All this happened as the BSP said that domestic liquidity—the amount of cash and “near-cash” items circulating in the economy—grew by 8.3 percent year-on-year to about P14.2 trillion during the same period.

This was slower than the 9.4-percent expansion in February. On a month-on-month seasonally-adjusted basis, money supply increased by 0.7 percent.

The current streak of bank lending contractions also marks the first time the country’s largest financial institutions underwrote less loans on a monthly basis since September 2006, according to BSP data.

On a month-on-month seasonally-adjusted basis, outstanding universal and commercial bank loans, net of banks’ short term deposits with the BSP, declined by 0.12 percent.

Outstanding loans to residents went down by 3.9 percent while outstanding loans to non-residents contracted by 20.4 percent.

“Credit activity remained tepid on banks’ tighter lending standards as a resurgence in coronavirus cases dampened the domestic economic outlook,” the BSP said.

Consumer loans to residents dropped by 9.9 percent in March after an 8.3-percent contraction in February due to the decline in credit card and motor vehicle loans.

Similarly, outstanding loans to major industries decreased, particularly to wholesale and retail trade and repair of motor vehicles and motorcycles (-9.7 percent), manufacturing (-5.5 percent), and financial and insurance activities (-5.1 percent).

These declines were partially tempered by the expansion in loans to some key production sectors like electricity, gas, steam, and air-conditioning supply (2.9 percent), real estate activities (1.5 percent), and human health and social work activities (11.6 percent).

Overall outstanding loans for production activities fell by 3.2 percent in March after a 1.3-percent decline in the previous month.

“Going forward, the BSP will continue to keep its monetary policy stance supportive of the government’s initiatives to address the pandemic,” the regulator said. “The BSP stands ready to take appropriate measures as needed to ensure ample liquidity and credit in the financial system, consistent with its price and financial stability objectives.”

TSB
Read more...