Bangko Sentral prods banks to boost lending

The Bangko Sentral ng Pilipinas has urged banks to increase lending some more to help the economy grow faster, saying there was still room for credit expansion even if loan growth was at double-digit rates.

According to the BSP, significant levels of liquidity in the banking sector made banks able to extend more loans to consumers and businesses. Banks should better perform their role of helping accelerate growth of the economy through more lending, the central bank said.

“There is still room for additional lending. Banks can further boost the growth of the economy,” BSP Governor Amando Tetangco Jr. said in a forum.

The appeal came as the economy posted a slower growth in the first half even if credit has been growing at a double-digit pace.

The economy, measured in terms of the gross domestic product, grew 4 percent in the first semester from a year ago, slowing down from the 8 percent registered in the same period last year.

Latest BSP data on lending showed that outstanding loans of universal and commercial banks grew 19.1 percent in July from a year ago, registering the fastest pace of credit growth in about two years.

Despite this, banks still had a lot of resources that were not lent out and were just kept as deposits in the BSP. Money placed in the BSP’s special deposit account (SDA) facility is at a historic high of about P1.6 trillion.

Some economists said banks could help accelerate the growth of the economy if some of the funds parked at the SDA facility would be used for more lending.

Banks are encouraged to park a significant portion of their funds at the SDA facility because doing so helps them earn without the risks that usually accompany the granting of loans. The BSP pays SDA deposits an interest of 4.5 percent a year across all maturities.

The BSP, however, stressed that while banks were being encouraged to extend more loans, they should maintain prudent lending standards. Keeping exposure to soured loans at a minimum was important in keeping banks stable, the regulator said.

The banking industry, however, said that the sharp rise in credit growth indicated that it was doing its role of intermediating funds to help boost the growth of the economy.