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Philippines: Bank lending seen recovering by end of year
MANILA, Philippines — Bank lending in the Philippines is expected to recover with a growth of eight percent by the end of the year, according to Fitch Solutions Country Risk & Industry Research.
Loan growth has been on the downtrend over the past three months as the banking industry remained risk averse and demand from borrowers continued to be weak amid the health crisis.
The research arm of the Fitch Group said loan growth would only gradually recover by the end of 2021 given still high perceptions of credit risks.
“We forecast growth of eight percent by the end of the year,” Fitch Solutions said.
Latest data from the Bangko Sentral ng Pilipinas (BSP) showed loans disbursed by universal and commercial banks retreated for the third straight month, with 2.7 percent in February from 2.5 percent in January.
This was the biggest slump for bank lending in more than 14 years or since the 2.9 percent contraction recorded in August 2006.
Preliminary data released by the central bank showed loans released by big banks amounted to P8.94 trillion in end-February, P251 billion lower than the P9.19 trillion recorded in end-February last year.
BSP Governor Benjamin Diokno earlier said “credit activity eased further as demand for loans remained soft.”
As the banking sector’s non-performing loans ratio continued to rise resulting in higher provision for potential soured loans, the industry remained risk averse amid uncertainties brought about by the pandemic.
Fitch Solutions said the BSP is likely to keep its accommodative monetary policy by keeping the benchmark interest rate at an all-time low of two percent.
It said the Philippines continues to struggle to contain the COVID-19 outbreak with cases breaching 770,000 including a record daily tally of 15,310 last Friday with over 13,300 deaths.
“We expect this to spur the BSP to keep monetary conditions loose as domestic activity remains below pre-pandemic levels and spare capacity is large. Compounding this is the lack of credit growth despite loose monetary conditions,” Fitch Solutions said.
Fitch Solutions said the BSP is likely to start a tightening cycle next year once the economy recovers from the pandemic-induced recession.
“We forecast the BSP to keep its key policy rate on hold at two percent through 2021 as the economy continues to grapple with the COVID-19 pandemic. We expect the BSP to begin hiking in 2022 as the economic recovery gathers steam, taking the key policy rate to 2.75 percent by end-2022,” it said.
Source: https://www.philstar.com/business/2021/04/05/2088865/bank-lending-seen-recovering-end-year