Bank lending slows down, liquidity (M3) up in April

Published June 15, 2020, 12:00 AM

by manilabulletin_admin

By Lee C. Chipongian

Big banks’ outstanding loans increased by 12.7 percent year-on-year in April, lower compared to the 13.6 percent growth registered in March, data from the Bangko Sentral ng Pilipinas (BSP) showed.

Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno. (Bloomberg)
Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno. (Bloomberg)

BSP Governor Benjamin E. Diokno said on Monday that bank lending activities will resume soon as the economy and businesses are re-started. “The BSP expects credit activity to pick up in the coming months, as economic activity resumes with the gradual reopening of the economy,” he said.

Diokno said the deceleration in the April numbers “reflects in part constrained economic activity following the Luzon-wide lockdown to contain COVID-19 outbreak.” The National Capital Region and other areas were on community quarantine beginning on March 17 with the most severe lockdown applied until May 15.

While on lockdown in April, commercial bank loans net of reverse repurchase placements with the BSP, increased by 0.7 percent on a month-on-month and seasonally-adjusted basis.

Diokno said liquidity conditions “have stabilized” after the BSP implemented several liquidity-improving measures and other “regulatory relief measures (that should help) reinforce banks’ capacity for sustained lending, especially to affected households and businesses.”

Bank lending in April totaled P9.159 trillion net of RRPs – these are government securities that BSP sells to the banks. Gross of RRPs, the total is P9.255 trillion.

Loans for production activities net of RRPs went up by 11.1 percent to P8.239 trillion during the period, lower compared to March’s 11.6 percent.

Lending to the real estate activities sector rose by 20.8 percent to P1.732 trillion while loans to the financial and insurance activities increased by 13.9 percent to P916.37 billion.

Borrowings from the electricity, gas, steam and air conditioning supply sector went up by 11.2 percent to P1.039 trillion, while information and communication, and transportation and storage grew by 29.4 percent and 20.8 percent respectively, to P400.797 billion and P318.785 billion.

Lending for household consumption is lower or 33.3 percent in April versus 36.5 percent in March because of decreased credit card and motor vehicle loans. Household consumption borrowings amounted to P919.737 billion.

In April, total credit card loans was at P434.192 billion, motor vehicle loans at P389.972 billion and salary-based general purpose consumption loan stood at P78.688 billion. Other loans amounted to P16.884 billion.

Meanwhile, Diokno said the stabilization of liquidity conditions are improving its monetary operations and interest rate outlook.
“(It) help the BSP’s liquidity measures gain further traction by providing better guidance to short-term market interest rates,” he said Monday after announcing a domestic liquidity (M3) growth of P13.6 trillion in April, it grew by 16.2 percent year-on-year, faster than the 13.3-percent growth in March.

Diokno said liquidity conditions and especially market sentiment have improved after several liquidity-enhancing measures were adopted by the BSP such as reserve requirement ratio (RRR) cuts and BSP’s government securities’ buying.

He also said the stabilization of liquidity conditions allow the BSP “some room to slowly rescale its monetary operations in the coming weeks” as the economy is slowly revived and to “transition towards new normal conditions.”

On a month-on-month seasonally-adjusted basis, the country’s money supply went up by 3.7 percent.
Demand for credit remained the principal driver of money supply growth, said Diokno.

Based on the central bank statement, domestic claims increased by 15 percent in April from March’s 11.9 percent from the sustained growth in credit to the private sector.

The net claims on the central government, in the meantime, grew faster in April at 45.5 percent versus the previous month’s P21.6 percent, and this was due to the National Government’s increased borrowings during the period.

The net foreign assets (NFA) grew by 11.9 percent year-on-year in April, from 9.1 percent previously. The BSP’s NFA position continued to grow as foreign reserves rise while the NFA of banks grew as its foreign assets went up due to higher interbank loans and deposits with other banks.

Diokno said earlier that monetary actions it has implemented while on lockdown has released about P1.1 trillion in additional liquidity. These actions include not only the RRR cuts but the 125 basis points interest rate reduction and the P300 billion loan to the government via a repurchase agreement.

“While we have put in place a long list of measures, the BSP stands ready to do more, if needed,” said Diokno.