Lockdowns temper bank lending in April

MANILA, Philippines — Lower loan take-up from both consumer and businesses eased bank lending growth in April, as the impact of one of the world's longest and toughest coronavirus lockdowns became more pronounced during the month.

Data from the Bangko Sentral ng Pilipinas released Monday showed outstanding loans by big banks — net of reverse repurchase agreements — grew 12.7% year-on-year in April, or the middle of the enhanced community quarantine (ECQ) in Luzon that lasted for nearly three months.

The latest reading was slower than 13.6% expansion recorded in March, the beginning of the ECQ which per government data shuttered two-thirds of businesses and displaced a fifth of workers in Luzon.

The tepid credit growth was not good news for BSP Governor Benjamin Diokno, who has joined global central bankers who have pulled out all the stops to minimize the economic damage from the coronavirus onslaught.

Confronted with coronavirus-induced economic shocks, Diokno has brought the key rate to a record-low of 2.75% through two cuts of 50 basis points each, the first of which came in March. Bank reserves were also lowered by another 200 basis points.

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. 

Diokno had said policy adjustments take a full three quarters before getting transmitted to the economy through higher money supply, which in April grew 16.2% year-on-year to about 13.6 trillion, faster than the 13.3-percent expansion in the preceding month. 

Apart from rate and reserve cuts, the BSP likewise increased the single borrowers' limit for loans granted by lenders and purchased P300 billion worth of government bonds to augment the country's war chest against the health crisis.

Consumer, corporate loans cool

But despite these interventions, bank lending softened as the effect of lower interest rates and more available bank credit is yet to be felt by consumers. Central bank data showed loans extended to households — composed of debts incurred through credit cards, salary, auto and personal loans — went up 33.3% annually in April, although slower than March's 36.5%.

Meanwhile, credit extended for production activities posted an annual growth of 11.1% in April, down from 11.6% a month ago due to lower borrowings incurred by businesses engaged in mining and quarrying (-5.3%), professional, scientific, and technical services (-18.4%) and manufacturing (-1.3%).

"Going forward, the BSP will remain vigilant in monitoring liquidity and credit dynamics amid significant disruptions to economic activity," the central bank said.

"The BSP reassures the public of its commitment to deploy its full range of instruments to ensure that domestic liquidity and credit remain adequate amid the ongoing coronavirus pandemic," it added.