Bank lending picks up in February

BUSINESS
April 23, 2020

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BANK LENDING in February grew quicker as easing moves by the central bank in 2019 were felt in the financial system.
    Outstanding loans disbursed by universal and commercial banks expanded by 12.2% in February, faster than the 11.6% seen in January, according to data from the Bangko Sentral ng Pilipinas (BSP).
    Inclusive of reverse repurchase agreements, lending climbed by 11.4%, also quicker than the 11.2% logged in the January.
    The central bank attributed the rise to production loans, which made up 86.3% of the total loans. Lending disbursed to the segment grew by 9.6%, quicker than the 8.8% rise in January.
    Production loans continued to increase on the back of lending to sectors including real estate activities (20%); financial and insurance activities (19%); electricity, gas, steam and air conditioning supply (9.7%); information and communication (22.5 %); and construction (16.2%).
    The BSP said other sectors also saw higher loans in February, except for those in the manufacturing (-2.1%), mining and quarrying (-10.2%), and other service activities (-34.7%).
    Meanwhile, growth of loans for household consumption eased to 37.6% from the 40.1% in January. The growth was fueled by the rise in motor vehicle loans.
    Analysts said the easing stance of the BSP last year began to translate to faster bank loan growth.
    They, however, said lending may weaken or even drop in the months ahead due to the slowdown caused by the coronavirus disease 2019 (COVID-19) and the lockdown in Luzon.
    “Bank lending continued to climb in February, largely on base effects and as the lagged impact of the 2019 reversal in monetary policy,” ING Bank N.V.-Manila Senior Economist Nicholas Antonio T. Mapa said in an e-mailed response.
    In 2019, the BSP slashed rates by 75 basis points (bp), partially reversing the 175 bps in hikes in 2018.
    The Monetary Board also reduced the reserve requirement ratio (RRR) of lenders by a total of 400 bps in 2019.
    Apart from policy moves, the government’s infrastructure thrust also boosted lending growth, said Michael L. Ricafort, chief economist at Rizal Commercial Banking Corp. (RCBC).
    “[It also] reflected increased infrastructure spending since the latter months of 2019 that had positive effects on related industries in the supply chain of the infrastructure projects,” Mr. Ricafort said in an emailed response.

According to ING’s Mr. Mapa, investment activity, which has an impact on bank lending growth, has been “on the mend” as 2019 came to close and was set to recover in 2020 until the COVID-19 took a toll on the economy.

“We could expect to see bank lending activity curtailed as investment appetite drops out,” he said.

Still, despite seeing likely slower growth in bank lending, Mr. Mapa said weaker investment appetite could be offset “by demand from consumers and corporates who may need funding to bridge payments after cash flows froze over during the lockdown.”

UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion likewise expects bank lending growth to be hit by COVID-19.

“In the coming months, lending growth is expected to decline, but the policy adjustments, hopefully, will encourage more borrowing from the economy,” Mr. Asuncion said in an email.

The central bank has already reduced rates by a total of 125 bps this year. This brought the overnight reverse repurchase, lending and deposit rates to 2.75%, 3.25%, and 2.25%, respectively.

Reserve requirement for universal and commercial banks have also been reduced by another 200 bps to 12% since April. Moreover, the BSP has slashed the minimum liquidity ratio of stand-alone thrift and rural banks by 400 bps to 16% until the end of this year as a liquidity boost given the current situation.

Aside from the latest rate cut announced last week, the BSP also said that it will count loans for medium-, small- and micro-sized enterprises as part of banks’ compliance with the reserve requirement to aid smaller businesses.
 

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