MANILA, Philippines — Bank lending posted a double-digit growth in end-February as cuts on interest rates and bank reserves make their way to the domestic economy, the Bangko Sentral ng Pilipinas (BSP) reported Monday.
Outstanding loans by big banks, net of reverse repurchase agreements, expanded 12.2% year-on-year in end-February, faster than the 11.6-percent clip recorded in the previous month, central bank data showed.
Related Stories
The latest improvement in credit is a welcome development for BSP Governor Benjamin Diokno, who ushered in a dovish central bank since getting appointed March last year. Diokno slashed rates by a total of 150 basis points in 2019, with the last reduction of 25 bps taking effect in September. The central bank also trimmed bank reserves by 400 bps for big and medium-sized banks and 200 bps for small lenders.
The BSP policy rate serves as a benchmark for lenders in setting interest for their loans, so lowering it was a signal for banks to make credit cheaper for borrowers. Meanwhile, decreasing the reserves allows banks to set aside more funds for lending. Policy adjustments to both take time to full get transmitted to the economy.
More easing from Diokno this year would add to the lending boost. Faced with coronavirus-induced economic shocks, the central bank chief brought policy rates to a record-low of 2.75% this month. Reserves were also lowered by another 200 bps to 12% for big banks, with another 200 bps said to be "forthcoming".
On Monday's report, BSP said loans extended to households — composed of debts incurred through credit cards and salary, auto and personal loans — “remained robust” in February, growing 37.6% annually, albeit slower than January’s 40.1%. Loans for car and motorbike purchases fueled the growth.
Meanwhile, bank lending for larger production activities grew 9.6%, faster than the preceding month’s 8.8%, data showed.
Specifically, higher borrowings were incurred by businesses and individuals engaged in real estate (20%); financial and insurance (19%); electricity, gas, steam and air conditioning supply (9.7%); information and communication (22.5%); and construction (16.2%).
On the flip side, bank lending to manufacturing sagged 2.1%, so did mining and quarrying (-10.2%), and other service activities (-34.7%) in February, figures showed.
Debt watchers have warned that the coronavirus outbreak and the six-week Luzon lockdown meant to arrest contagion could hurt banks’ loan quality and increase bad debts they held as companies reel from revenue drought and thousands face unemployment.
While the BSP’s rate cuts will benefit consumers, the credit raters said the move means lower profits for banks for every peso they lend out.
"Going forward, the BSP will remain vigilant in monitoring liquidity and credit dynamics amid significant disruptions to economic activity," the central bank said in a statement.
“The BSP reassures the public of its commitment and readiness to deploy its full range of instruments to ensure that domestic liquidity and credit remain adequate amid the ongoing health crisis,” it added.