PH bank loans contract for 6th month in May although finance system awash in cash

MANILA, Philippines — The Philippine central bank’s generous infusion of liquidity into the local financial system has once more failed to gain traction among the country’s borrowers and lenders as can be gleaned from data released on Wednesday (June 30) showing another decline in bank lending in May—the sixth consecutive month of contraction in loans.

In a statement, the Bangko Sentral ng Pilipinas (BSP) said that outstanding loans of universal and commercial banks, excluding short term placements with the BSP, fell by 4 percent year-on-year in May, following a 5-percent decline in April.

Outstanding loans to residents declined by 3.5 percent while outstanding loans to non-residents went down by 18.8 percent.

“Credit activity has remained muted as the emergence of new coronavirus variants and the continued risk of infection dampen prospects for economic recovery,” the BSP said.

All this occurred as domestic liquidity expanded by 4.7 percent year-on-year to about P14.3 trillion in May 2021, albeit slower than the 5.2-percent growth recorded in April.

The monetary authority has already released an estimated P2.2 trillion in liquidity into the local financial system since the start of the coronavirus pandemic in early 2020, equivalent to about a tenth of the value of country’s economic output.

The goal of this massive liquidity infusion is to help the Philippine economy recover from its deepest slump in post-war history recorded in 2020.

So far, however, both borrowers and lenders have been reluctant to take on new credit due to uncertainties on how much longer COVID-19 will linger and what the so-called new normal would look like.

According to the BSP, consumer loans to residents fell by 9.2 percent in May following a 10.2-percent decrease in April as motor vehicle loans and salary-based consumption loans continued to decline.

At the same time, outstanding loans to major industries fell anew, particularly to manufacturing (-7.9 percent), wholesale and retail trade and repair of motor vehicles and motorcycles (-7.1 percent) and professional, scientific and technical activities (-56.9 percent).

The decrease in outstanding loans to these industries was partially offset by the increase in loans to real estate (3.9 percent), information and communication (3.4 percent), human health and social work (13.7 percent) and construction (2.8 percent). Overall, total outstanding loans for production activities decreased by 2.9 percent in May after contracting by 3.9 percent in April.

“Looking ahead, the BSP shall sustain monetary policy support in order for the economic recovery to gain more traction,” the agency said. “In ensuring a favorable financing environment, the BSP will remain vigilant against emerging risks to inflation and economic growth, consistent with its price and financial stability mandates.”

TSB