BSP: Bank lending may be growing, but not as much

Bank lending in the country is not growing as fast as it should be because of the slow rate of rise in investments made by firms in the country, the Bangko Sentral ng Pilipinas said.

Slow growth in investments tends to dampen demand for bank loans.

BSP Deputy Governor Diwa Guinigundo acknowledged that the country’s banking sector has significant liquidity, which remains largely untapped.

Also, placements made by banks in the BSP’s special deposit account (SDA) facility have reached about P1.7 trillion, Guinigundo added.

Economists said banks should withdraw some of their funds in the SDA facility and used the cash for lending to better aid economic growth.

But banks prefer to place their funds in the SDA facility because it provides them with virtually risk-free yields, Guinigundo said. This tendency serves to reinforce the problem of insufficient demand for loans.

“There is still much room for [credit growth] because of problems related to absorptive capacity,” Guinigundo told reporters.

Although there is liquidity available in the banking system, the official explained, a significant portion of this remains untapped because demand is not as strong as it can get.

The central bank official said more policies or programs must be put in place to encourage firms to invest more.

He said efforts to fast-track implementation of public infrastructure projects, led by those under the public-private partnership (PPP) program of the government, should be supported.

The official also said that the government’s commitment to boost spending on infrastructure, which could entice private firms to also invest more, should be fulfilled.

Guinigundo also defended the central bank’s SDA facility against critics, who cited it as a reason why banks would not lend as much.

When demand for corporate loans is not enough, he explained, the BSP has to siphon off the banking sector’s excess liquidity. Otherwise, the extra cash that may circulate in the economy will be used for unnecessary consumption, thereby driving inflation.

Bank lending in the Philippines is actually growing, especially when compared with that of other countries. However, observers from the private sector and the government agree that there is room for much faster growth in credit given the enormous liquidity of the banking sector.

Outstanding loans from universal and commercial banks reached P2.98 trillion as of end-June, up by 14.9 percent from the 2.59 trillion reported in the same period last year.