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Philippines: BSP’s easing moves save bank lending from lockdown’s impact
MANILA, Philippines — Bank lending grew in March as easing moves by the Bangko Sentral ng Pilipinas (BSP) to stimulate demand and soften the impact of the coronavirus disease-2019 (COVID-19) outbreak on the economy make their way through the country’s financial system.
Central bank data released Tuesday showed outstanding loans by big banks, net of reverse repurchase agreements, expanded 12.9% year-on-year in end-March, when the enhanced community quarantine in Luzon took effect. The lockdown was enforced in March 17, which per government data shuttered two-thirds of businesses and displaced a fifth of workers in the main island.
Despite expectations of a slower loan take-up from consumers and businesses, the latest reading was still faster than the downwardly revised 12-percent clip posted in the previous month.
The tad improvement in credit was welcomed by BSP Governor Benjamin Diokno, who has joined global central bankers that have pulled out all the stops to minimize the economic damage from the coronavirus onslaught.
Confronted with coronavirus-induced economic shocks, Diokno has brought the key rate to a record-low of 2.75% through two cuts of 50 basis points each, the first of which came in March. Bank reserves were also lowered by another 200 basis points.
The BSP policy rate serves as a benchmark for lenders in setting interest for their loans, so lowering it was a signal for banks to make credit cheaper for borrowers. Meanwhile, decreasing the reserves allows banks to set aside more funds for lending. Diokno had said policy adjustments take a full three quarters before getting transmitted to the economy through higher money supply.
Apart from rate and reserve cuts, the BSP likewise increased the single borrowers’ limit for loans granted by lenders and purchased P300 billion worth of government bonds to augment the country’s war chest against the health crisis.
As a result of all these BSP interventions, bank lending grew, led by credit extended for production activities that expanded 12% annually in March. The growth rate was faster than 9.4% expansion posted in February, data showed.
Specifically, higher borrowings were incurred by businesses and individuals engaged in real estate where loans surged 21.8%, financial and insurance (17.2%) and information and communication (20.8%). On the flip side, loans granted to manufacturing, with most factories closed during the lockdown, dipped 0.4%, as well as those for mining companies (-5.3%).
But the effect of lower interest rates and more available bank credit is yet to be felt by consumers. Loans extended to households— composed of debts incurred through credit cards, salary, auto and personal loans— wen up 22.9% year-on-year in March, albeit slower than the preceding month’s 37.3%.
“Going forward, the BSP will remain vigilant in monitoring liquidity and credit dynamics amid significant disruptions to economic activity,” the central bank said.
“The BSP reassures the public of its commitment to deploy its full range of instruments to ensure that domestic liquidity and credit remain adequate amid the ongoing coronavirus pandemic.” it added.
Source: https://www.philstar.com/business/2020/05/12/2013522/bsps-easing-moves-save-bank-lending-lockdowns-impact