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Philippines: Credit growth slumps in September
Slowest in 13 years
MANILA, Philippines — Credit growth slumped to its slowest pace in more than 13 years as banks are more cautious because of the growing number of loan defaults despite the regulatory relief measures extended by the Bangko Sentral ng Pilipinas (BSP).
Preliminary data from the BSP showed loans extended by big banks inched up by only 2.8 percent to P9.02 trillion as of end-September from P8.78 trillion a year ago due to the impact of the pandemic. This was the slowest growth since the 2.4 percent expansion in June 2007.
ING Bank senior economist Nicholas Mapa said the continued decline in bank lending points to weak investment climate despite the flurry of easing by the BSP’s Monetary Board, including the 175 basis points cuts in interest rates and the lowering of the reserve requirement ratios (RRR).
“Slowing bank lending is happening despite the flurry of BSP rate cuts for the year on top of the bevy of liquidity enhancement measures carried out such as RRR reductions and even unconventional monetary easing,” Mapa said.
Credit growth has been slowing after Luzon was placed under enhanced community quarantine to slow the pread of the virus.
As a result, the economy stalled and the gross domestic product (GDP) contracted for three straight quarters, shrinking by 10 percent from January to September. The country’s domestic output shrank by 11.5 percent in the third quarter, a record 16.9 percent in the second, and 0.7 percent in the first quarter.
The pandemic-induced recession has prompted banks to take a cautious stance as the industry’s gross non-performing loan (NPL) ratio hit a seven-year high of 3.4 percent in September.
“The deceleration in bank lending reflects the current trends reported in the GDP figures yesterday with capital formation cratering as both firms and corporates hold back big ticket investments to wait out the storm,” Mapa said.
Statistics released by the BSP Tuesday evening showed lending by big banks for production activities slowed further to 2.4 percent, hitting P7.86 trillion in September from last year’s P7.68 trillion.
Disbursements to the real estate sector also slowed to 16.8 percent reaching P1.69 trillion and accounted for 18.7 percent of the total loan disbursements.
Loan releases to the wholesale and retail trade, as well as repair of motor vehicles and motorcycles contracted further by 3.4 percent to P1.1 trillion, while lending to the manufacturing sector shrank by 2.6 percent to P1.01 trillion.
On the other hand, loans for electricity, gas, steam and air-conditioning supply inched up by three percent to P1 trillion and cornered a share of 11.2 percent.
Likewise, the BSP reported a slower 10.2 percent growth in household loans to P872.13 billion in September from P791.62 billion in the same month last year.
The increase in credit card loans slowed anew to 21 percent to P404.84 billion in September. The BSP’s Monetary Board has imposed a 24 percent ceiling on credit card charges effective Nov. 3 to ease the burden of borrowers amid the COVID-19 pandemic.
The BSP also noted the growth in auto loans slumped further to 0.9 percent to P369.31 billion.
“The slowdown in lending is also occurring at a time wherein the system is flush with liquidity with excess liquidity surging to P1.69 trillion with all those funds dressed up and nowhere to go besides the BSP’s overnight and term facilities,” Mapa said.
The BSP believes the passage of Senate Bill 1849 or the Financial Institutions Strategic Transfer (FIST) Act on third reading last Tuesday would allow banks to lend more to businesses and consumers severely affected by the pandemic by offloading their bad assets, protecting their balance sheets from potential rise in unpaid loans.
“The enactments of the FIST law will not only complement our regulatory and supervisory initiatives to mitigate the adverse effect of the COVID-19 pandemic but is also a necessary measure to assist the domestic financial system in the aftermath of this health crisis,” BSP Governor Benjamin Diokno said earlier.
Source: https://www.philstar.com/business/2020/11/12/2056241/credit-growth-slumps-september