Bank lending remains robust

Published November 2, 2019, 12:00 AM

by manilabulletin_admin

By Lee C. Chipongian

Despite additional liquidity after a reduction in reserves ratio, banks’ lending activities did not change in September, reporting the same pace of growth of 10.5 percent as it did in August, based on central bank data.

MB file photo.
MB file photo.

The Bangko Sentral ng Pilipinas (BSP) said with reverse repurchase (RRP) placements, bank lending grew by 10.2 percent from 10 percent previously. In peso terms, total outstanding loans reached ₱8.78-trillion net of RRP and ₱9.03 trillion with RRP.

Domestic liquidity or M3, in the meantime, expanded by 7.7 percent year-on-year to ₱12 trillion in September. This was a faster growth than August’s 6.3 percent.

The BSP cut the reserve requirement ratio (RRR) in May, June and July for a total 200 basis points (bps) which released ₱200 billion into the financial system. Most of these fresh funds were absorbed by the bonds market and by the BSP’s open market facilities. Only a small portion of liquidity were used as loan releases by banks.

The BSP said a month-on-month seasonally-adjusted basis, M3 was up by 1.5 percent. “Demand for credit remained the principal driver of money supply growth,” it said in a statement. Domestic claims increased by 7.5 percent from 7.1 percent because of the sustained growth in credit to the private sector.

The BSP noted that loans for production activities or about 87.4 percent of banks’ total loans, grew by nine percent in September which was the same pace of growth in August. Productivity loans amounted to ₱7.68 trillion in September.

Loans for household consumption also rose by 26.2 percent in September from 25.4 percent in August, with more borrowers availing of motor vehicle, credit card, and salary-based general purpose consumption loans. Household consumption loans reached ₱791.62 billion.

The BSP said it will “continue to ensure that the expansion in domestic credit and liquidity remains consistent with the BSP’s price and financial stability objectives.”

In September, loans for production activities continued to be driven by lending to key sectors such as real estate activities; financial and insurance activities; construction; electricity, gas, steam and airconditioning supply; and wholesale and retail trade, repair of motor vehicles and motorcycles.

Net claims on the central government also grew by six percent in September from 2.4 percent in August and “reflecting the increased borrowings by the National Government,” said the BSP in its M3 report.

The BSP monitors domestic liquidity dynamics to “ensure that overall monetary conditions remain in line with maintaining the BSP’s price and financial stability objectives.”

Last September 27, a day after reducing the policy rate by another 25 bps – now a total 75 bps cut for 2019 – the Monetary Board announced that it will be trimming the RRR by 100 bps in the first week of November. Last week, it decided to again slash another 100 bps off the RRR in the first week of December. In total the BSP reduced the RRR by 400 bps this year, releasing more than P400 billion in new liquidity.

The BSP still sees tight liquidity condition in the market and with a decelerating inflation which it said could be a low of 0.5 percent in October, it found opportunities to accelerate RRR reduction this year.

 
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