For the first time since late 2006, big banks’ outstanding loans declined by 0.7 percent year-on-year in December 2020 during the initial year of the COVID-19 pandemic which pulled the economy into a recession.

Total bank lending net of banks’ reverse repurchase (RRP) placements with the Bangko Sentral ng Pilipinas (BSP) amounted to P9.178 trillion in December compared to same time in 2019 of P9.242 trillion.

ING Bank economist Nicholas Mapa said that as expected, the “deep economic recession” has affected demand for new loans.

Based on BSP data, the last time outstanding loans net of RRPs were in the negative was in September 2006.

“Stalling lending activity also forced domestic liquidity growth to decelerate, with M3 growth slowing to single digit growth of 9.5 percent,” said Mapa.

“With non-performing loans on the rise and the job market in shambles, we can expect bank lending to remain in contraction for the next couple of months as both consumer and corporate demand may be subdued given the dour economic outlook,” he added.

Mapa also said that the “shrinking bank lending points to sustained weakness in the economy’s fundamentals with capital formation, a key sector of the Philippines’ recent growth story (and is) expected to stay in the red in the coming quarters.”

“Missing the extra punch coming from capital formation, growth prospects continue to hint at a sluggish recovery path, despite headline grabbing 2021 GDP growth rates. The drive to return to pre-pandemic levels of GDP will likely be pushed back further to end-2022 or early 2023 with capital formation impaired by floundering consumer and business sentiment,” he said.

The BSP in a statement Wednesday reiterated that the monetary policy stance will continue to be accommodative in support of credit demand.

The BSP is also reassuring the public of its “commitment to deploy its full range of monetary instruments as necessary to ensure ample liquidity and credit, in line with its mandate to maintain price and financial stability.”

Last year, the BSP implemented liquidity-enhancing measures that injected P2 trillion of liquidity to the financial system. Most of this liquidity went back to the BSP’s term deposit, securities and its overnight facilities.

In December, domestic liquidity as measured by M3 grew by 9.5 percent year-on-year to P14.207 trillion, slower than November’s 10.5-percent growth. The BSP said domestic claims increased by 4.7 percent from 6.7 percent in November “amid tepid bank lending activity.”

Under M3, net foreign assets (NFA) went up by 25.2 percent year-on-year in December, faster than the 22.9-percent growth in November.

“The expansion in the BSP’s NFA position reflected the increase in the country’s gross international reserves during the month. Meanwhile, the NFA of banks also rose, albeit at a slower pace relative to the previous month, as growth in banks’ foreign assets eased on account of lower loans and investments in marketable securities,” said the BSP.

Bank lending net of RRPs had a marginal increase, the central bank said. “However, this was more than offset by the 20.3-percent drop in outstanding loans to non-residents. Overall, lending remained tepid as banks continued to be risk-averse amid the ongoing pandemic,” the BSP added.

Loans for production activities amounted to P8.041 trillion in December while consumer loans reached P875.993 billion.

Loans for production activities, net of RRPs, decreased by 0.4 percent in December from a 0.7-percent growth in November.

Consumer loans grew at a slower rate of 4.4 percent compared to 7.1 percent in November with reduced credit card loans, motor vehicle loans, and salary-based consumption loans.

Loans to some major production sectors however expanded such as: real estate activities which grew by 5.3 percent; electricity, gas, steam, and air conditioning supply by 3.8 percent; human health and social work activities by 49.2 percent; information and communication by 5.3 percent; and transportation and storage by five percent.