Bank lending seen to recover in H2

MANILA, Philippines — Malaysian financial giant Maybank expects bank lending in the Philipppines to recover in the second half due to stronger demand from corporate and middle market clients.

“For the second half, we expect this to recover as the banks actually shared that the corporate and middle market pipeline is stronger than the first half,” Rachelleen Rodriguez, equity research analyst at Maybank Kim Eng, told participants of the virtual Invest ASEAN 2021 Philippines Week forum organized by Maybank Kim Eng.

Rodriguez said there was a weakness in bank lending in the first half due to companies deferring capital expenditures due to their limited balance sheets.

Latest data from the Bangko Sentral ng Pilipinas (BSP) showed loan disbursements by big banks shrank for seven straight months, albeit at a slower pace of two percent in June from four percent in May as the spread of the more contagious Delta variant continued to temper economic recovery.

The outstanding loans of universal and commercial banks amounted to P9.09 trillion as of end-June compared to P9.28 trillion in the same period last year as measures to address the still elevated number of COVID-19 infections constrained domestic economic activity.

Likewise, the non-performing loans (NPLs) of banks surged by nearly 74 percent to P483 billion in June from P277.81 billion in the same month last year.

The asset quality of the industry has been deteriorating as banks have been piling up NPLs or past due loan accounts where the principal or interest is unpaid for 30 days or more after due date as well as bad debts due to the impact of the COVID-19 pandemic.

In anticipation of rising defaults due to the impact of the pandemic-induced recession, the banking sector’s allowance for credit losses increased by 31.3 percent to P398 billion from P302.93 billion.

Rodriguez said Maybank believes soured loans already peaked in the second quarter and expects the NPL ratio of the banking sector to settle at around five percent this year.

“In terms of NPLs, I think we’ve already seen the highest growth in the second quarter and any residual growth in the third quarter and fourth quarter will no longer be as huge,” she said.