Banks urged to lend more to productive sectors

Despite the Bangko Sentral ng Pilipinas’ (BSP) monetary easing, economists are worried that banks would remain “stingy” in lending to productive sectors of the economy.

In a research note, Philippine National Bank economist Jun Trinidad said the BSP’s accommodative stance would gradually nudge the banks to prudently shift stance to net easing. He estimated that changes in banks credit standards could affect bank loans by P700 million per quarter.

“Strong bank loan growth remains a necessary condition for strong prospects in 2020 and beyond,” the economist said.

He cited the BSP’s latest senior loan officers’ survey (SLOS) that indicated that banks’ credit standards for loans to enterprises were unchanged in the third quarter, although the diffusion index yielded net credit “tightening” amid the BSP’s monetary accommodation.

Micro, small and medium enterprises took the brunt of prevailing tight credit standards as respondents perceived “a deterioration in the profile of borrowers” including “reduced tolerance for risk.” On the other hand, bank credit standards in granting loans to households improved materially.

To date, a number of nonbank mobile online lenders are aggressively lending to consumers.

The SLOS also showed that changes in the profitability and liquidity of the bank’s portfolio are among the key determinants that could affect the banks’ lending behavior.

“With the bank’s prudent credit stance/behavior amid BSP’s monetary accommodation in a benign inflation environment, the credit and liquidity situation would be keenly watched as both public and private entities gear up for next year’s investment-driven prospects,” Trinidad said.

In a separate research note, ING Philippines economist Nicholas Mapa noted that commercial bank lending continued to grow but was largely unmoved by BSP’s recent overnight rate cuts and adjustments to the reserve requirement ratio (RRR). In September, new loans rose by 10.5 percent from last year, moving at the same pace in August, with analysts tagging reluctance on the part of corporates to take on hefty loans as they waited for rates to hit rock bottom.

Mapa noted that the Philippines was riding high on an investment-driven growth track to string together an impressive run of 15 straight quarters of growth above 6 percent. However, this changed in the first half of 2019, with capital formation taking a backseat as lending growth dwindled and liquidity tightened.

“For the moment, bank lending continues to be constrained as CFOs (chief financial officers) supposedly play a waiting game for rates to be slashed further and as they deal with compliance-heavy regulations that may be tagged as another reason for the slowdown in lending activity,” Mapa said.

“Meanwhile, BSP has been busy reducing reserve requirements now that inflation has slowed after learning its lesson from the 2018 episode. So far we’ve seen very little effect from a direct infusion from RRR reductions and we continue to see the same pace of lending until something else changes,” he said.