Bank lending posts softer slump, but new lockdowns may derail recovery

MANILA, Philippines — Bank lending continued to contract in July, albeit at a milder pace, but the recent return to harsh lockdowns may reverse some gains.

Excluding lending to each other, outstanding loans of big banks fell 0.7% year-on-year in July to P9.12 trillion, the Bangko Sentral ng Pilipinas reported Wednesday.

This drop was slower compared with 2% on-year decline posted in June. Month-on-month, bank lending inched up by measly 0.5%.

The easing contraction in lending activity is a good news for the BSP, which has slashed its policy rate to historic-low 2% in a bid to stimulate credit demand and help the economy recover from a pandemic-induced meltdown.

Still, this marked the seventh straight month of decline in lending, a depressing trend that the central bank blamed on borrower’s fears of incurring more debts at a time the pandemic is roiling job markets, and lender’s decision to tighten access to credit as soured loans they hold build up.

After Metro Manila and some provinces returned to stricter curbs this month amid a flare-up in cases driven by the Delta variant, Ruben Carlo Asuncion, chief economist at UnionBank of the Philippines, believes the fresh restrictions will “take a toll again on lending activity.”

“I am expecting that the ECQ (enhanced community quarantine) of 2020 is not the same with the ECQ of 2021 and that the latter a lighter version of the other, in terms of the magnitude of restrictions. With this, I am hoping for a softer negative impact than that of 2020,” Asuncion said.

Data showed consumer loans sagged at an annualized rate of 8.2% in July due to continued contraction in motor vehicle loans. This, however, was slower than the revised 8.7% drop in June.

Meanwhile, loans that banks extend to businesses for various activities surprised with a 0.8% year-on-year expansion to P8.04 trillion in July, the first growth since November last year and a reversal from 0.6% slump recorded in the previous month.

“Looking ahead, the BSP will continue to prioritize monetary policy support in order to ensure the continued momentum of economic recovery,” the BSP said.

“At the same time, the National Government’s targeted fiscal initiatives and health interventions will be crucial in boosting domestic demand and strengthening the recovery,” it added.