Bank lending increased by 1.3 percent year-on-year in August, ending eight months of contraction with the rollout of more COVID-19 vaccines and the lifting of stricter lockdowns in major cities.

The big banks’ outstanding loans, net of reverse repurchase (RRP) placements with the BSP, reversed a 0.7-percent decline in July.

“This is the first reported expansion in outstanding loans of universal and commercial banks after eight consecutive months of contractions amid improvements in sentiment brought about by the continued rollout of COVID-19 vaccines and the gradual easing of quarantine restrictions,” said BSP Governor Benjamin E. Diokno during his weekly online “GBED Talks”.

Meantime, domestic liquidity or M3 in August expanded by 6.9 percent year-on-year to P14.4 trillion, faster than the 5.9 percent growth in July.

On a month-on-month seasonally-adjusted basis, M3 increased by 1.2 percent. Bank lending also rose by 1.1 percent net of RRPs on a month-on-month basis.

Bank credit improved mainly due to the increase in loans for production activities which grew by 3.1 percent in August from 0.8 percent in the previous month. The BSP said expansion was driven by the growth in loans for real estate activities which increased 7.2 percent year-on-year.

Loans to the information and communication also grew by 20.3 percent; manufacturing by three percent; professional, scientific and technical activities by 89.8 percent; and transportation and storage by 9.5 percent.

The central bank noted that consumer loans to residents remained subdued due to the continued decline in motor vehicle and credit card loans. It contracted by 8.1 percent in August from an 8.2-percent decrease in July.

BSP data also showed that outstanding loans to residents, net of RRPs, rose by two percent in August after decreasing by 0.1 percent in July while outstanding loans to non-residents fell at a softer rate of 16.6 percent after falling 17.4 percent in the previous month.

The BSP said that with government’s fiscal and health interventions, the “prevailing accommodative monetary policy stance should help boost domestic demand and market confidence in support of economic activity.”

As for domestic liquidity, the BSP said it will “keep a steady hand on its policy levers in support of the National Government’s ongoing initiatives to allow the momentum of economic recovery to gain more traction.”

Domestic claims in August grew by 6.7 percent year-on-year from 4.5 percent in July with the expansion in net claims on the central government and improvement in bank lending to the private sector. Net claims on the central government rose by 23.5 percent in August while claims on the private sector went up by 2.3 percent.

Bank lending declined for the first time in December 2020. The last time bank lending contracted before December last year was in the third quarter of 2006.