Bank lending slows down at end-2008

MANILA, Philippines - As banks grew increasingly wary about lending in the midst of a global economic downturn, the expansion in lending activities slowed down at the end of 2008.

Data from the Bangko Sentral ng Pilipinas (BSP) indicated that bank lending continued to increase in December, albeit slower, expanding by 17.5 percent including placements with the BSP.

The BSP reported that the outstanding loans of commercial banks including reverse repurchase agreements or RRPs increased in December by 17.5 percent year-on-year.

Excluding banks’ RRP placements with the BSP, bank lending actually grew faster by 20.5 percent.

These growth rates were, however lower than those recorded a month earlier.

The BSP reported that loans for production activities drove the expansion in bank lending, growing by 18.3 percent in December.

The December growth rate was negligibly lower than the 18.4-percent expansion posted in November 2008.

The BSP said lending to agriculture, hunting, and forestry grew by 53 percent while lending to real estate, renting, and business services expanded by 30.2 percent.

On the other hand, bank lending to wholesale and retail trade grew by 27.9 percent; and transportation, storage and communication increased by 45.9 percent.

But the BSP said lending to the financial intermediation sector contracted by 14.9 percent, as did lending to the fishing and mining sectors.

Consumption loans on the other hand grew by 13.4 percent in December from 20.6 percent in November. The BSP said the growth came mostly from credit card receivables which expanded by 20.5 percent from 23.3 percent in the previous month.

Auto loans also rose by 10.5 percent from 12.6 percent in the previous month. Meanwhile, loans for other household consumption fell by 16.3 percent from a growth of 22 percent in November.

“We keep a close watch on bank lending trends to generate an advance indicator on the direction of future economic activity,” said BSP Governor Amando M. Tetangco Jr. “The BSP’s monetary easing moves in previous months are expected to support credit growth in the months ahead to help alleviate the effects of the global financial crisis on the domestic economy.”

Tetangco said the BSP expects bank lending to continue growing in 2009 although admitted there would be some slow down as bank regulators saw initial signs that banks are tightening their credit standards.

Tetangco said this was a natural reaction to the crisis which had banks freezing credit in major economies. In the Philippines, Tetangco said the reaction was not quite so extreme but he said tightening of credit standards was the prudent thing to do.

“The only thing we want to ensure is that even if banks tightened their standards for lending, the actual cost of money would not go up since we are providing liquidity and making it cheaper by cutting our interest rates,” he said.

The BSP data for December were obtained from the new system of bank reporting under the Financial Reporting Package (FRP). This system replaced the Consolidated Statement of Condition (CSOC) reports.

The FRP adopts the detailed classification of the amended 1994 Philippine Standard Industrial Classification (PSIC) for international comparability. The FRP also classifies lending by production activities (which covers 16 economic sectors) and by household consumption purposes (with three economic categories).

Bank reports previously classified loans into only nine economic sectors.