MANILA, Philippines — Local banks are expecting a pickup in loan demand from businesses and households despite the tightening of lending requirements as the economy continues to reopen after a long and strict lockdown, the Bangko Sentral ng Pilipinas (BSP) said.
Dennis Lapid, deputy director of the BSP’s Department of Economic Research, said results of the Q4 2020 Senior Loan Officers’ Survey (SLOS) showed a further pickup in loan demand for enterprises and a rebound in demand from households based on the diffusion index (DI) approach.
“DI-based results suggested expectations of a further net increase in overall loan demand from enterprises associated largely with corporate clients’ higher inventory financing and accounts receivable financing needs, improved economic outlook, and lack of other sources of funds,” Lapid said.
He also noted banks’ expectations of a net increase in overall loan demand from households including personal or salary loans due largely to higher household consumption, lower income prospects, and lack of other sources of funds.
Lapid said overall loan demand for businesses pointed to a net increase, particularly for top corporations in the fourth quarter last year, due to higher customers’ requirement for inventory financing with the reopening of the economy.
Enterprises also cited the higher accounts receivable financing needs amid a decline in corporate clients’ internally generated funds, Lapid said.
On the other hand, the BSP official said the decline in household loan demand in the last quarter could be attributed to lower household consumption and housing investments.
The Philippines slipped into recession with gross domestic product (GDP) contracting by 10 percent in three quarters last year as the economy stalled due to the strict lockdown to slow the spread of COVID-19.
Economic managers expect the GDP to rebound with a growth of 6.5 to 7.5 percent this year after contracting by an estimated 8.5 to 9.5 percent in 2020, ending more than two decades of GDP growth. The Philippine economy last contracted by 0.5 percent in 1998 due to the Asian financial crisis.
Lapid said banks are expected to continue tightening their lending standards to both enterprises and households in the first quarter due to a more uncertain economic outlook along with expected deterioration in borrowers’ profits and profitability of banks’ portfolios.
Latest data from the BSP showed credit growth slumped to near zero at 0.3 percent in November from the revised 1.8 percent in October due to uncertainties brought about by the global health crisis.
For his part, BSP officer-in-charge Francisco Dakila Jr. said credit activity remains weak as risk aversion persists in the banking sector.
Dakila said banks continued to tighten their lending standards anew on concerns of a further escalation in non-performing loans (NPLs).
“Nonetheless, the BSP remains confident in the soundness and resilience of the banking sector, as capital adequacy ratios have stayed well above the mandatory standards,” he said.
Preliminary data showed the industry’s gross NPL ratio picked up to 3.81 percent in end-November last year from 3.72 percent in October. Bad debts refer to past due loan accounts where the principal or interest is unpaid for 30 days or more after due date.
The Bankers Association of the Philippines sees the level peaking at six to seven percent, way below the 16.9 percent peak recorded in 2001 due to the Asian financial crisis.