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CREDIT from large lenders continued to contract for the third consecutive month in February despite faster liquidity growth, reflecting that risk aversion and subdued demand amid the pandemic.
Outstanding loans from universal and commercial banks fell 2.7% to P8.936 trillion in February from a year earlier, preliminary data from Bangko Sentral ng Pilipinas (BSP) showed. This is more pronounced than the 2.5% contraction in January and marked the third consecutive month of annual decline in lending activity.
Including reverse repurchase agreements, bank loans fell 2.3% in February.
The drop in bank lending largely reflects weak economic conditions in the country, Rizal Commercial Banking Corp. chief economist Michael L. Ricafort said in a note.
Loans for productive activities fell 1.3% in February, after a 1.1% decline in January. This, given that the indebtedness allocated to the wholesale and retail trade and repair of motor vehicles and motorcycles (-6.3%), financial and insurance activities (-7.5%) and manufacturing (-5.7%) continued decreasing.
On the other hand, the credit granted to sectors such as real estate (5.1%), supply of electricity, gas, steam and air conditioning (3.6%), as well as transportation and storage (7.1%) increased.
Consumer loans plummeted 8.3% in February, worse than the 7.3% drop in January. Credit card loans (-9.6%) and motor vehicle loans (-8.8%) continued to decline, while wage-based general purpose consumer loans slowed to growth of 4.1% from 7.2%.
Banks may be open to extending more credit in the coming months, as the Financial Institution Strategic Transfer (FIST) was recently enacted into law, Ricafort said.
“The FIST Act would be an available option for banks to sell some of their bad loans and other bad assets from their balance sheets, thus freeing up more funds and helping to increase their lending activities,” he said.
The Republic Law 11523 or the FIST Law was signed by President Rodrigo R. Duterte in February, while its implementing rules and regulations were released on Monday.
The BSP expects banks to discharge at least P152 billion of their past due assets to FIST Corporations. The central bank estimates that the law will reduce the NPL ratio between 0.63 and 0.73 percentage points.
Lenders have tightened their credit standards to avoid a further increase in bad loans in their portfolio. The latest data from the BSP showed that the delinquency rate of large banks stood at 3.7% in January, much higher than the 2.16% the previous year.
Mr. Ricafort also said that the return of stricter restriction measures is a risk factor for credit growth, as it reduces entrepreneurship.
LIQUIDITY REBOUNDS
Meanwhile, M3, which is considered the broadest measure of liquidity in an economy, expanded 9.4% in February after its 8.9% growth in January, the central bank said in a separate statement on Wednesday.
Domestic claims posted a faster growth of 5.6% in February, from 4.9% in January.
Central government net loans rose 47.1%, faster than the 39% growth in the previous month.
Meanwhile, net foreign assets increased 21.8% for the second consecutive month. Those of other deposit companies expanded 38.1%, much faster than the 32.6% in January.
“The BSP seeks to maintain its monetary policy stance in support of the government’s measures to address the pandemic. The BSP is prepared to take immediate steps, as appropriate, to ensure ample liquidity and credit in the financial system, consistent with its pricing and financial stability targets, ”he said.
Last week, the central bank kept reverse buyback, loan and overnight deposit rates intact at all-time lows of 2%, 2.5% and 1.5%, respectively. – Luz Wendy T. Noble
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