Bank lending grows in August, snapping 8 straight months of slump

MANILA, Philippines — Bank lending finally snapped eight consecutive months of contraction to return to positive territory in August, bringing good news to a government that is counting on banks to jumpstart the economy from a pandemic-induced crash.

Excluding interbank lending, outstanding loans issued by big banks rose 1.3% year-on-year in August to P9.2 trillion, the Bangko Sentral ng Pilipinas reported Thursday.

The increase was a reversal from 0.7% decline in July. Month-on-month, credit grew by 0.9%.

In turn, more money circulated in the domestic economy. A separate BSP report showed M3, a measure of money supply, expanded 6.9% year-on-year in August to P14.4 trillion, faster than 5.9% annual growth in July. Month-on-month, M3 increased by 1.2%.

This marked a positive development for the BSP, which has brought the key rate to historic-low 2% in a desperate bid to stimulate bank lending in a pandemic-hit economy that was starved of consumption, a major growth driver.

For Jun Neri, lead economist at Bank of the Philippine Islands, the credit growth could build a case for the BSP’s first post-pandemic rate hike. "With inflation and inflation expectation starting to look de-anchored, our ultra-loose monetary policies looks overdue for unwinding," Neri said in a Viber message.

“As we have been saying, demand is no longer anemic as merchandise imports are recovering fast and will likely be back to 100% of 2019 levels by end-2021, if not early 2022. Thus while lag in the ASEAN region in terms of loan growth recovery, we are catching up pretty fast considering we’ve had two major lockdowns this year,” he added.

Central bank data showed much of the lift came from loans extended to production activities, which grew 3.1% year-on-year in August. Under this segment, lending to businesses engaged in professional, scientific and technical activities posted the sharpest annual growth at 89.8%.

But the BSP said consumer loans remained “subdued” during the month after contracting 8.1% year-on-year “largely due to the continued decline in motor vehicle and credit card loans.”

For Ruben Carlo Asuncion, chief economist at UnionBank of the Philippines, the effects of fresh lockdown on bank lending “may have a lag” and would likely appear in the next report. To recall, Metro Manila and nearby areas briefly returned to tight restrictions in August to arrest the spread of the dreaded Delta variant.

“Moving forward, the BSP will continue to provide the appropriate monetary policy support to allow the momentum of economic recovery to gain more traction, in line with the BSP's price and financial stability mandates,” the BSP said.

“Together with the National Government’s fiscal and health interventions, the BSP’s prevailing accommodative monetary policy stance should help boost domestic demand and market confidence in support of economic activity,” it added.