Bank credit down 2.4%; money supply at 14 trillion pesos in January – Manila Bulletin

The COVID-19 pandemic pushed bank lending down 2.4% in January, a bigger drop from 0.7% at the end of December 2020 with lackluster loan demand and risk-averse banks due to the year-long lockdown and restrictions on economic activity.

The Bangko Sentral ng Pilipinas (BSP) said on Tuesday (March 2) that the outstanding loans of major banks in January amounted to 8,952 billion pesos net of reverse repurchase (RRP) investments with the BSP, a decrease of 2.4% year over year. These data include both the total outstanding credits of residents and non-residents.

“Generally, credit activity remained weak due to weak demand as banks continued to be risk averse due to concerns over asset quality and profitability,” according to the BSP. On a seasonally adjusted monthly basis, outstanding universal and commercial bank loans less RRPs declined 0.3%.

The BSP pointed out that bank lending to net residents of RRPs fell by 1.7% to 8,963 billion pesos, which is significantly lower than the 21.6% drop in total loans to non-residents of 258 855 billion pesos.

“In terms of loans to residents, consumer loans contracted by 6.9% in January 2021 after having increased by 4.1% in December 2020 due to the drop in credit card and motor vehicle loans as well as than the slowdown in payday consumer credit during the month,” the BSP said.

Loans for production by economic activity fell 1.1% year-on-year to 7.831 billion pesos, while consumer loans fell 6.9% to 861.417 billion pesos. Under consumer loans, credit card receivables fell 10% to 405.277 billion pesos while car loans fell 5.8% to 361.449 billion pesos. However, general purpose consumer loans based on wages increased by 7.6% to reach 79.919 billion pesos.

Outstanding loans to key sectors continued to fall, such as: loans to wholesale and retail trade and repair of automobiles and motorcycles, which fell by 6.9%; manufacturing by 7.4%; and financial and insurance activities by 6.3%.

“However, the contraction was tempered by sustained growth in lending to some major productive sectors, in particular real estate activities (5.7%), transport and storage (6.6%), construction (4. 3%), and electricity, gas, steam and electric air conditioning supply (3.5%),” the BSP noted.

Loans to other production sectors, he added, “reflect marginal growth following the reopening of commercial activities, in particular human health and social work activities (11%) as well as accommodation and catering (4.0%)”.

Despite the decline in total bank lending, there was ample liquidity or money circulating in the financial system. There were no takers due to lack of confidence from borrowers to take out new loans or refresh as the country is still in community quarantine – the longest lockdown in the world at 12 months.

Based on BSP data, domestic liquidity or M3 increased 9% year-on-year in January to reach 13.956 trillion pesos. This figure was slightly lower than the 9.5% growth at the end of December 2020. On a seasonally adjusted monthly basis, M3 increased by 0.7%.

The BSP noted that domestic claims increased by 5% year-on-year in January, compared to 4.5% previously, due to the increase in net claims on national government (NG) “even if the lending activity bank remained weak”. With NG borrowings, net claims on central government also increased by 39%, compared to 31.1% at the end of December 2020.

As for net foreign assets (NFA), they rose 21.8% year-on-year, a slowdown from the 25.5% growth of the previous month. “The expansion of BSP’s NFA position reflects the increase in the level of the country’s gross international reserves compared to the same period a year ago. slower compared to December 2020 as growth in banks’ foreign assets slowed due to lower lending and investment in marketable securities,” the BSP said.

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