Bank loans contract for third consecutive month in February
CREDIT from major lenders continued to contract for a third consecutive month in February despite faster growth in liquidity, reflecting this risk aversion and subdued demand amid the pandemic.
Universal and commercial bank loans outstanding 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 figure is more pronounced than the 2.5% contraction in January and marked the third consecutive month of annual decline in lending activity.
Including repurchase agreements, bank loans fell 2.3% in February.
The decline in bank lending largely reflects the gloomy 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 loans fell 8.3% in February, worse than the 7.3% drop in January. Credit card loans (-9.6%) and auto loans (-8.8%) continued to decline, while salary-based general purpose consumer loans slowed to a growth of 4 , 1% against 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 non-performing loans 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 152 billion pesos 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 criteria 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 stood at 3.7% in January, much higher than the 2.16% a year earlier.
Mr Ricafort also said the return of tighter restraint 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 – rose 9.4% in February after growing 8.9% in January, the central bank said on Wednesday in a report. separate release.
Domestic claims grew 5.6% faster in February, compared to 4.9% in January.
Central government net borrowing rose 47.1%, faster than the 39% growth recorded a month earlier.
At the same time, net foreign assets increased by 21.8% for the second consecutive month. Those held by other deposit-taking institutions rose 38.1%, much faster than January’s 32.6%.
“The BSP seeks to maintain its monetary policy in favor of the government’s measures 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 overnight repo, lending and deposit rates at record highs of 2%, 2.5% and 1.5%, respectively. – Luz Wendy T. Noble