The COVID-19 pandemic has pushed bank lending to decline by 2.4 percent in January, a larger drop from 0.7 percent end-December 2020 with lackluster loan demand and risk-averse banks due to the year-long lockdown and restrictions to economic activity.
The Bangko Sentral ng Pilipinas (BSP) on Tuesday (March 2) said big banks’ outstanding loans in January totaled P8.952 trillion net of reverse repurchase (RRP) placements with the BSP or 2.4 percent lower year-on-year. This data includes both residents and non-residents’ total outstanding loans.
“In general, credit activity remained soft due to weak demand as banks continued to be risk-averse on concerns over asset quality and profitability,” according to the BSP. On a month-on-month seasonally-adjusted basis, outstanding universal and commercial bank loans minus RRPs dropped by 0.3 percent.
The BSP pointed out that bank lending to residents net of RRPs fell by 1.7 percent to P8.963 trillion which was significantly lower than the 21.6 percent decline to non-residents’ total loans of P258.855 billion.
“Under loans to residents, consumer loans contracted by 6.9 percent in January 2021 after increasing by 4.1 percent in December 2020 due to the decline in credit card and motor vehicle loans as well as the slowdown in salary-based consumption loans during the month,” said the BSP.
Loans for production by economic activity decreased by 1.1 percent year-on-year to P7.831 trillion while consumer loans declined by 6.9 percent to P861.417 billion. Under consumer loans, credit card receivables dropped by 10 percent to P405.277 billion while car loans dipped by 5.8 percent to P361.449 billion. However, salary-based general purpose consumption loan increased by 7.6 percent to P79.919 billion.
Outstanding loans to key sectors continued to decline such as: loans to wholesale and retail trade and repair of motor vehicles and motorcycles which fell by 6.9 percent; manufacturing by 7.4 percent; and financial and insurance activities by 6.3 percent.
“However, the contraction was tempered by sustained growth in loans to some major production sectors, specifically to real estate activities (5.7 percent), transportation and storage (6.6 percent), construction (4.3 percent), and electricity, gas, steam, and air conditioning supply (3.5 percent),” the BSP noted.
Loans to other production sectors, it added, “reflected marginal growth following the reopening of business activities especially human health and social work activities (11 percent) as well as accommodation and food services activities (4.0 percent).”
Despite the decline in total bank lending, there were ample liquidity or money supply sloshing around the financial system. There were no takers due to lack of confidence from the part of borrowers to take out new or refresh loans because the country is still on community quarantines – the longest lockdown in the world at 12 months.
Based on BSP data, domestic liquidity or M3 grew by nine percent year-on-year in January to P13.956 trillion. This was slightly lower than end-December 2020’s 9.5 percent growth. On a month-on-month seasonally-adjusted basis, M3 increased by 0.7 percent.
The BSP noted domestic claims were up by five percent year-on-year in January from 4.5 percent previously because of the increase in net claims on the National Government (NG) “even as bank lending activity remained weak.” With NG borrowings, net claims on the central government also increased by 39 percent from 31.1 percent end-December 2020.
As for net foreign assets (NFA), this went up by 21.8 percent year-on-year, slower compared to the previous month’s 25.5-percent growth. “The expansion in the BSP’s NFA position reflected the increase in the country’s level of gross international reserves relative to the same period a year ago. Meanwhile, the NFA of banks also expanded, albeit at a slower pace relative to December 2020, as growth in banks’ foreign assets eased on account of lower loans and investments in marketable securities,” said the BSP.