PH growth fears mount as banks, borrowers shun loans for 6th straight month

MANILA, Philippines—Bank lending slowed further in September, the sixth consecutive month of deceleration for this key economic gauge of economic activity, as financial institutions continued to be gun shy on underwriting new loans during the COVID-19 pandemic.

According to the Bangko Sentral ng Pilipinas (BSP), outstanding loans of universal and commercial banks, net of their short term deposits with the regulator, eased to 2.8 percent in September from 4.7 percent in August.

“The general decline in bank growth partly reflects banks’ reduced tolerance for risk, decline in loan demand due, in turn, to weak business and income prospects,” the BSP said. There was “an observed shift by non-financial corporates to alternative sources of funds,” it added.

On a month-on-month seasonally-adjusted basis, outstanding universal and commercial bank loans decreased by 1 percent.

The latest data so far represented six months of slowing growth in bank loans since the 13.6-percent expansion recorded in March, just as the country entered a broad lockdown to fight the spread of the COVID-19 public health crisis.

Loans for production activities grew by 2.4 percent in September from 4.1 percent in August as loans across most sectors decelerated during the month.

Outstanding loans to key sectors also continued to contract, particularly in manufacturing (-2.6 percent) as well as wholesale and retail trade and repair of motor vehicles and motorcycles (-3.4 percent).

The following sectors contributed to the overall growth in production loans: real estate (7.3 percent), information and communication (9.7 percent), electricity, gas, steam, and air conditioning supply (3.0 percent), human health and social work activities (44.5 percent) and transportation and storage (8.4 percent).

Similarly, loans to households expanded at a lower rate of 10.2 percent in September from 12.9 percent in August mainly due to the continued slowdown in credit card and motor vehicle loans during the month.

More ominously, however, ING Bank Manila senior economist Nicholas Mapa noted that the deceleration in bank lending reflected the current trends reported in the third quarter gross domestic product figures with capital formation “cratering” as both firms and corporates hold back big ticket investments to wait out the storm.

“These trends are also mirrored in the import numbers, which show substantial falls for capital goods and durable equipment as investors turn gun shy on making big bets given the economic recession,” he said.

“Unfortunately, even the government appears shy to spend in a big way with government spending expected to trend lower to close out 2020,” Mapa said.

“With investment momentum fading, the economy will be lacking its top two key sectors in the quarters to come, which does not bode well for growth prospects down the line,” he added.

TSB