Bank lending shrinks for third straight month in February

A Philippine peso note is seen in this picture illustration June 2, 2017. — REUTERS/THOMAS WHITE/ILLUSTRATION

CREDIT extended by big lenders continued to shrink for a third straight month in February despite faster liquidity growth, reflecting that risk aversion and dampened demand amid the pandemic.

Outstanding loans by universal and commercial banks dropped 2.7% to P8.936 trillion in February from a year earlier, preliminary data from the Bangko Sentral ng Pilipinas (BSP) showed. This is steeper than the 2.5% contraction in January and marked the third consecutive month of annual decline in lending activity.

Inclusive of reverse repurchase agreements, bank lending fell 2.3% in February.

The decline in bank lending largely reflects the sluggish economic conditions in the country, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a note.

Loans for production activities dropped 1.3% in February, after a 1.1% decrease in January. This, as borrowings meant for wholesale and retail trade and repair of motor vehicles and motorcycles (-6.3%), financial and insurance activities (-7.5%), and manufacturing (-5.7%) continued to decline.

On the other hand, credit extended to sectors such as real estate (5.1%), electricity, gas, steam, and air-conditioning supply (3.6%), as well as transportation and storage (7.1%) increased.

Consumer loans slumped by 8.3% in February, worse than the 7.3% drop in January. Credit card (-9.6%) and motor vehicle loans (-8.8%) continued to slide, while salary-based general purpose consumption loans slowed to a 4.1% growth from 7.2%.

Banks may be open to extending more credit in the coming months as the Financial Institutions Strategic Transfer (FIST) was recently signed into law, Mr. Ricafort said.

“The FIST Law would be an option available to banks to sell some of their NPLs and other nonperforming assets from their balance sheets, thereby freeing up more funds and helping increase their lending activities,” he said.

Republic Act 11523 or the FIST Act was signed by President Rodrigo R. Duterte in February, while its implementing rules and regulations were released on Monday.

The BSP expects that banks will offload at least P152 billion of their nonperforming assets to FIST Corporations. The central bank estimates the law will bring down the nonperforming loan (NPL) ratio by 0.63 to 0.73 percentage points.

Lenders have tightened their credit standards to prevent a further increase in bad loans in their portfolio. Latest data from the BSP showed the NPL ratio held by big banks stood at 3.7% in January, much higher than the 2.16% a year earlier.

Mr. Ricafort also said the return of stricter restriction measures is a risk factor to lending growth, as business capacity is reduced.

Meanwhile, M3 — which is considered as the broadest measure of liquidity in an economy — expanded by 9.4% in February after its 8.9% growth in January, the central bank said in a separate statement on Wednesday.

Domestic claims saw quicker growth of 5.6% in February, from 4.9% in January.

Net borrowings of the central government increased by 47.1%, quicker than the 39% growth a month earlier.

Meanwhile, net foreign assets rose by 21.8% for the second straight month. Those held by other depository corporations expanded 38.1%, much faster than the 32.6% in January.

“The BSP looks to keep its monetary policy stance supportive of the government’s measures to address the pandemic. The BSP is prepared to take immediate measures as appropriate to ensure ample liquidity and credit in the financial system, consistent with its price and financial stability objectives,” it said.

The central bank last week kept the overnight reverse repurchase, lending, and deposit rates untouched at record lows of 2%, 2.5%, and 1.5%, respectively. — Luz Wendy T. Noble