The central bank’s efforts to convince banks to release more funds to pandemic-hit borrowers especially the micro, small and medium enterprises (MSMEs) finally paid off in August when bank lending shifted from a contraction to a growth for the first time since December 2020.

Faster deployment of COVID-19 vaccines and lifting of quarantine restrictions encouraged more big banks to lend despite stringent credit standards.

Lending inched up by 1.3 percent year-on-year in August and breaking eight months of decline, according to the Bangko Sentral ng Pilipinas (BSP).

One of the reasons why lending was declining in months is that business and personal loan borrowers are encountering severe bank requirements to take out loans. Some banks are imposing unreasonable requirements that borrowers just give up.

The BSP has been using moral suasion to convince banks to lend more to businesses to help in the economic recovery. They have implemented “swift, time-bound and targeted” regulatory and operational relief measures to help banks cope with the pandemic such as the relaxation of the single borrower’s limit and the reduced credit risk weights of MSME loans.

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 by 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 by 17.4 percent in the previous month.

Bank reprieves during the pandemic also include the staggered booking of allowance for credit losses and the counting of MSME loans as compliance to the reserve requirement.

Based on the BSP’s latest survey of bank loan officers, credit standards remained on the cautious side because of “decreased tolerance for risk” during the pandemic. There was also a “deterioration in the profiles of borrowers” amid an uncertain economic outlook leading to reduced credit line sizes, stricter collateral requirements and loan covenants, as well as increased use of interest rate floors, said the BSP.