Big banks’ lending growth further weakened to just 2.8 percent in September from an already low of 4.7 percent in August, the Bangko Sentral ng Pilipinas (BSP) said.

 Domestic liquidity or M3, in the meantime, expanded by 12.3 percent year-on-year to P13.5 trillion in September, a slower pace of growth from 13.7 percent in August.

 The BSP said the “general decline in bank growth partly reflects banks’ reduced tolerance for risk, decline in loan demand due in turn, to weak business and income prospects and observed shift by non-financial corporates to alternative sources of funds.”

 On a month-on-month seasonally-adjusted basis, the outstanding loans of the universal and commercial banks -- net of net of reverse repurchase (RRP) placements with the BSP – fell by one percent. As for M3, based on the month-on-month seasonally-adjusted number, it increased by 0.2 percent.

 The BSP said its accommodative monetary policy stance, and so far it has reduced policy rate by a cumulative 175 basis points since February, along with government actions to deal with COVID-19 pandemic, continue to be “crucial in supporting market sentiment and credit activity”.

  “(The) BSP reassures the public of its commitment to deploy its full range of instruments as necessary to ensure that domestic liquidity and credit remain adequate amid significant economic disruptions due to the ongoing health crisis,” said the BSP.

 The total outstanding loans amounted to P9.025 trillion in September. Lending for production activities net of RRPs increased by 2.4 percent to P7.861 trillion, lower than the 4.1 percent increase in August as loans across most sectors slowed down. Lending to households also grew at a lower rate of 10.2 percent to P872.126 billion from 12.9 percent in August, and the BSP said this was due to the continued slowdown in credit card and motor vehicle loans.

 As for M3, the central bank said domestic claims were up by 8.2 percent year-on-year in September compared to August’s 10 percent. It said the claims on the private sector which was “driven mainly by bank lending to non-financial private corporations and households” moved at a weaker pace due to “constrained economic activity and weak corporate sector performance.”

 The BSP said banks expect borrowers to have “muted appetite for borrowings following the lockdown” and at the same time, the loan quality has weakened as the ratio of non-performing loan (NPL) continue to increase to 3.4 percent in September from 2.84 percent in August, and the latest bad loans ratio is higher than the five-year average of 1.9 percent, or from 2015 to 2019.

 In anticipation of the climbing NPL ratio, banks’ coverage ratio increased to 109.04 percent in June with the extended grace periods for loan payments under Bayanihan 1. With the easing of lockdown restrictions, the NPL coverage ratio has dropped to 91.75 percent in September. As part of regulatory relief measures, the BSP allow banks to a staggered booking for credit losses.

 Based on a BSP survey of banks, they expect NPL ratio to climb to 4.6 percent by end-2020. A banking sector estimate, in the meantime, has put the range of end-of-year NPL ratio to three percent to four percent, and five to six percent in 2021.

 According to Bank of the Philippine Islands (BPI) president and CEO, and also the president of the Bankers Association of the Philippines, Cezar P. Consing, the 4.6 percent end-2020 NPL ratio is a reasonable estimate.

“For industry-wide NPL levels, I think the recent BSP survey which has NPLs at 4.6 percent by year-end 2020 is a reasonable estimate. Obviously, there will be banks with lower NPL ratios, and there will be banks with higher NPL ratios.  NPL levels will become more transparent when the grace period on loan payments falls away,” said Consing in an email.

For the BSP, the NPL as an indicator is important in identifying the potential problems and vulnerability of the banking and financial sector. NPL has increased as borrowers from economic sectors such as real estate activities, wholesale and retail trade, and loans to individuals/households for consumption -- these are auto loans and credit card loans -- contributed to the rising NPLs. 

BSP Governor Benjamin E. Diokno has said that he continue to see demand for loans and that banks’ appetite to lend is still on the healthy side.

The BSP, in terms of providing liquidity, an accommodative policy stance and assisting banks to cope

with the health crisis, has “done a lot” but Diokno said the BSP’s “toolkit is far from exhausted (we) are prepared to do more, if and when necessary" and this includes further easing monetary policy "in case needed". Diokno also said that after several sets of regulatory reliefs to banks, the BSP stress tests continue to show favorable banking numbers and “prospects” amid the pandemic-related risks.