Bank loans decline for third consecutive month in February

A Philippine peso banknote is visible in this illustration on June 2, 2017. – REUTERS / THOMAS WHITE / ILLUSTRATION

CREDIT from major lenders continued to contract for a third straight month in February despite faster growth in liquidity, reflecting this risk aversion and declining demand amid the pandemic.

Universal and commercial banks’ outstanding loans fell 2.7 percent to 8.936 billion pesos in February from a year earlier, according to preliminary data from Bangko Sentral ng Pilipinas (BSP). This is more pronounced than the 2.5% contraction in January and marked the third consecutive month of annual decline in credit activity.

After repurchase agreements, bank loans fell 2.3% in February.

The decline in bank lending largely reflects sluggish economic conditions in the country, said the chief economist of Rizal Commercial Banking Corp. Michael L. Ricafort in a note.

Loans to productive activities fell 1.3% in February, following a 1.1% decline in January. This, while loans for wholesale and retail trade and repair of motor vehicles and motorcycles (-6.3%), financial and insurance activities (-7.5%) and manufacturing ( -5.7%) continued to decline.

On the other hand, loans granted to sectors such as real estate (5.1%), the supply of electricity, gas, steam and air conditioning (3.6%), as well as transport and storage ( 7.1%) increased.

Consumer credit fell 8.3% in February, worse than the 7.3% drop recorded in January. Loans on credit cards (-9.6%) and motor vehicles (-8.8%) continued to decline, while salary-based general purpose consumer loans slowed to a growth of 4. 1%, from 7.2%.

Banks might be willing to extend more credit in the coming months, as the strategic transfer of financial institutions (FIST) was recently enacted, Ricafort said.

“The FIST law would be an option offered to banks to sell some of their NPLs and other non-performing assets on their balance sheets, thus freeing up more funds and helping to increase their lending activities,” he said.

Republic Law 11523 or 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 offload at least P152 billion of their non-performing assets to FIST companies. The central bank estimates that the law will reduce the NPL ratio from 0.63 to 0.73 percentage points.

Lenders have tightened their credit standards to avoid a further increase in bad loans in their portfolios. The latest data from the BSP showed that the ratio of NPL held by the big banks was 3.7% in January, well above the 2.16% a year earlier.

Mr Ricafort also said that the return of tighter restriction measures is a risk factor for loan growth, as business capacity is reduced.

Meanwhile, M3 – which is considered the broadest measure of liquidity in an economy – grew 9.4% in February after growing 8.9% in January, the central bank said on Wednesday in a report. separate release.

Domestic claims grew at 5.6% faster in February, after 4.9% in January.

Central government net borrowing rose 47.1%, faster than the 39% growth a month earlier.

At the same time, net foreign assets increased by 21.8% for the second consecutive month. Those held by other depositories rose 38.1%, much faster than January’s 32.6%.

“The BSP seeks to maintain its monetary policy in favor of the measures taken by the government to combat the pandemic. The BSP is ready to take immediate action, if necessary, to ensure sufficient liquidity and credit in the financial system, in line with its price and financial stability objectives, ”he said.

Last week, the central bank kept reverse repo, loan and deposit rates overnight at historically low levels of 2%, 2.5% and 1.5%, respectively. – Luz Wendy T. Noble

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