Lending falls for 1st time in 14 years

By Luz Wendy T. Noble, BusinessWorld, 4 Feb 2021

BANK LENDING contracted for the first time in over 14 years in December, as lenders tightened credit standards and demand for loans remained weak amid the recession.

Outstanding loans by big banks dropped by 0.7% year on year in December to P9.178 trillion from P9.242 trillion a year ago, data from the Bangko Sentral ng Pilipinas (BSP) released on Wednesday showed.

This is a reversal from the already meager 0.5% growth in November and the first decline since September 2006 when it fell by 1.9%, according to the BSP Department of Economic Research.

“The drop (in year on year terms) in business loans could be traced to lower appetite or demand from firms or businesses, specifically from large enterprises, and to some extent the relatively stricter bank loan standards,” BSP Deputy Governor Chuchi G. Fonacier said in a text message to BusinessWorld.

Inclusive of reverse repurchase agreements, bank lending also slipped 0.7% in December from the 0.6% expansion the prior month.

“With nonperforming loans on the rise and the job market in shambles, we can expect bank lending to remain in contraction for the next couple of months as both consumer and corporate demand may be subdued given the sour economic outlook,” ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa said in an e-mail.

As of end-November, bad loans climbed 73.6% to P404.687 billion from P233.064 billion a year ago. It also picked up by 2.43% from the P394.432 billion as of end-October.

With this, the nonperforming loan ratio of the industry reached 3.81% as of end-November. The BSP expects this to have reached 4.6% by end-December.

The bad loan ratio peaked at 17.6% in 2002 in the aftermath of the Asian financial crisis.

Based on BSP data, credit extended to businesses, which made up 87.2% of the total, slipped by 0.4% year on year after growing by 0.7% in November.

BSP data also showed a large contraction in the borrowings of firms within the following sectors: mining (-9.4%); wholesale and retail trade and repair of motor vehicles and motorcycles industry (-6.8%); education (-6.8%) followed by manufacturing (-5.2%); and financial and insurance activities (-4.6%).

Meanwhile, lending growth was seen in industries such as real estate (5.3%); electricity, gas, steam, and air conditioning supply (3.8%); human health and social work activities (49.2%); information and communication (5.3%); and transportation and storage (5%).

For consumer loans, growth slowed to 4.4% in December from 7.1% in November. This, as motor vehicle loans saw a steeper decline of 5.3% (from -3.3%), while credit cards (4.4% from 7.1%) and salary-based loans (9.3% from 11.3%) expanded at a slower pace.

“The BSP’s monetary policy stance remains accommodative in support of credit demand as a complement to fiscal initiatives which remain crucial in ensuring public welfare and directly supporting spending by firms and households,” the central bank said.

Last year, the BSP slashed rates by 200 basis points, bringing down the overnight reverse repurchase, lending, and deposit facilities to record lows of 2%, 2.5, and 1.5%, respectively. However, the BSP’s aggressive easing meant to support recovery and encourage lending came at a time when banks tightened credit standards and borrower confidence weakened.

Asian Institute of Management economist John Paolo R. Rivera said the more stringent lending standards are expected as the crisis reduces incomes.

“This [stricter lending standards] will hamper economic growth recovery because money has to circulate to perform transactions and investments that fuel the economy,” he said in an e-mail, noting banks will need a form of “reassurance” to be lured into lending more.

The Financial Institutions Strategic Transfer (FIST) bill is already awaiting to be signed by President Rodrigo R. Duterte. When enacted, it will help banks reduce NPLs by freeing up nonperforming assets to asset management companies.

M3 GROWTH

Meanwhile, liquidity growth eased further for the seventh consecutive month, reflecting the tepid bank lending activity.

M3 — considered to be the broadest measure of liquidity in an economy — rose 9.5% in December to P14.207 billion from P12.976 billion a year ago. The expansion was slower than the 10.5% print in November and marked the seventh straight month of easing since June’s 14.9%, BSP data showed.

Month on month, M3 increased by 0.7%.

Domestic claims during the month grew 4.7%, easing from the 6.7% in November.

Net borrowings by the central government expanded 31.8%, much slower than the 40.7% the prior month.

Meanwhile, net foreign assets in peso terms picked up 25.2%, faster than the 22.9% in November.

On the other hand, net foreign assets held by other depository corporations rose by a slower pace of 69.4% from 75.8%.

“The overall stance of monetary policy is expected to remain accommodative while economic recovery gets underway,” the BSP said.

“The BSP stands ready to deploy further monetary policy measures as necessary in order to ensure adequate support to economic activity while maintaining price and financial stability.”

BSP officials have said ample liquidity remains in the system and have vowed to keep rates low. The first policy-setting meeting of the Monetary Board is set on Feb. 11.