Bank lending to resume growth in third quarter as confidence improves

LENDING is expected to resume its growth next quarter after months of decline amid improved sentiment among lenders and borrowers as the economy gradually reopens and with the government’s vaccine rollout continues, Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno said on Monday.

“As we’re opening up the economy, I think there’s growing confidence. There will be [a] more optimistic outlook in the next few quarters so that’s where the situation is,” Mr. Diokno said in an interview with ANC on Monday, adding lending could resume its expansion by the third quarter.

“There’s a lot of liquidity in the system. There’s risk aversion on the part of the banks but I think confidence is coming back largely because of the vaccines. To me, that’s the game changer here,” he added.

Outstanding loans by big banks shrank for the fifth straight month in April, dropping by 5%, based on latest BSP data. Loans disbursed for production activities (-3.9%) and consumer loans (-10.2%) contracted that month. This, despite central bank measures that have infused over P2 trillion in fresh liquidity into the financial system. 

“That’s understandable because the banks have become stricter in their standards,” Mr. Diokno said. “On the other hand, [it’s also] because in the economy, there is less demand for expansion. If you are a businessman, you borrow to expand your business, but why will you expand at this time?”

Metro Manila and adjacent provinces were placed under strict lockdown measures in March and April due to the surge in coronavirus disease 2019 (COVID-19). Restrictions have been eased since then as cases dropped, and government officials and various stakeholders continue to push for the further reopening of the economy.    

ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa said the low base from last year will also support a recovery in lending next semester. 

“June was the first month of single-digit growth before overall lending crashed into negative territory by year-end,” Mr. Mapa said in an e-mail, adding he also expects loans disbursed by banks to post growth by the latter part of the third quarter.

Aside from the gradual reopening of the economy, Mr. Mapa said previous monetary policy decisions are expected to have worked their way into the financial system by next half. The BSP has said the transmission of interest rate adjustments takes six to nine months.

“As we roll into the third quarter, we will likely see the impact of BSP’s stimulus measures finally taking root. We note also that BSP can only do so much in terms of monetary policy, with the banks also needed to do their part to ensure that monetary stimulus is impactful and effective,” Mr. Mapa noted.

The central bank last adjusted benchmark interest rates in November when it trimmed borrowing costs to record lows. It has been on a pause since then and has said it would keep its policy stance accommodative to support the economy’s recovery.

The central bank will have its next policy review on June 24. — LWTN

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes:

<a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>