Weak economy dampens lending–BSP

THE Bangko Sentral ng Pilipinas (BSP) said the economic slowdown is taking its toll on bank lending, citing its deceleration in recent months.

“The slowdown in lending may be more demand-driven than supply-constrained,” BSP Governor Amando Tetangco Jr. said in an e-mail to reporters.

He said the credit-intensive sectors such as manufacturing contributed to reduced demand for loans, adding that firms are running down their inventories and postponing their expansion plans. “But remember, as we are an inherently service economy, there will be credit from these sectors,” he added.

Gross of reverse repurchase (RRP) loans, outstanding loans of commercial banks grew by 13.4 percent in April, lower than the 17.8 percent in March.

Although banks are investing in the special deposit accounts (SDA) of the BSP, Tetangco said their balance sheets are dominated by loans.

“We note that the liquidity provision measures of the BSP have served to calm down financial markets and therefore we didn’t see the credit freezing experienced in other jurisdictions,” he said.

The governor said an immediate reaction from financial institutions during a crisis is to restructure the balance sheet, such that loans shrink and investments grow.

“We haven’t seen that among our banks. Today, loans are still about half of the balance sheet of the banking system and investments are about a quarter,” he said.

“If all the funds were in SDA only, you would have seen investments rise at the expense of loans. Nine months after [the collapse of US investment bank] Lehman [Brothers], we still don’t see a balance sheet that is investments-dominated and where loans have shrunk. That by itself says a lot,” he added.

Banks cut their SDA placements with the BSP, signaling an increase in their allocation for lending to the business and household sectors.

BSP data showed SDA placements declined by P59.2 billion to P531.8 billion at end-March this year from P591 billion in the same period last year.

Based on BSP’s recent survey of senior loan officers, banks, however, have turned cautious in their lending.

“As I said, there are pluses and minuses and where the chips finally fall is a numbers game—but we are hopeful that there will continue to be reasonable credit growth going forward,” Tetangco.

The BSP earlier disclosed that non-performing consumer loans continued to rise in the first quarter of the year, indicating that credit quality weakened amid the slowing economy. The non-performing consumer loan ratio climbed to 9 percent in March this year from 8.6 percent in December and 8.1 percent in March last year. –Maricel E. Burgonio, Manila Times