Lending growth picks up  in Feb. on rising demand

LENDING GROWTH was faster in February as demand for credit among consumers and businesses increased amid rising economic activity. — BW FILE PHOTO

BANK LENDING growth quickened further in February as credit for both businesses and consumers expanded during the month and as domestic liquidity recorded a steady rise.

Outstanding loans by big banks rose by 8.8% in February, picking up from the 8.4% pace seen in January, preliminary data released by the Bangko Sentral ng Pilipinas (BSP) on Thursday showed.

Inclusive of reverse repurchase agreements, bank lending rose by 8.5%. It also expanded by 0.4% month on month.

The growth logged in February marked the seventh straight month of increase and is the quickest since the 9.6% in June 2020.

“Credit activity continues to gain momentum as easing coronavirus disease 2019 (COVID-19) restrictions drive the improvement in mobility and market demand,” BSP Governor Benjamin E. Diokno said in a statement.

In February, the government eased restrictions in Metro Manila to Alert Level 2 as the Omicron surge waned. This boosted economic activity as more businesses increased their operating capacity.

“Faster loan growth was also seen as some borrowers rushed financing activities in view of the increase in borrowing costs locally and globally amid elevated inflation and, as a matter of prudence, in preparation for the widely expected US Federal Reserve decision,” Rizal Commercial Banking Corp. (RCBC) Chief Economist Michael L. Ricafort said in a Viber message.

The Fed started to raise interest rates in March. Prior to this, the Fed had signalled to the market its plan to gradually normalize their policy settings to quell inflation and as the job market improves.

Meanwhile, ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa said the lending growth in February reflects the lagged impact of the BSP’s rate cuts in late 2020.

“Monetary accommodation alongside improving economic prospects propelled lending faster,” Mr. Mapa said in an e-mail.

The central bank slashed rates by a total of 200 basis points in the first year of the pandemic in order to support the economy during the crisis. Despite this, lending contracted for eight straight months until July last year due to risk aversion among banks and borrowers before eventually picking up in August.

Loans for production activities rose by 9.7% in February, a tad faster than the 9.5% a month earlier. This was driven by the expansion in credit for real estate activities (16%); wholesale and retail trade, repair of motor vehicles and motorcycles (5.7%); information and communication (33.3%); financial and insurance activities (13.2%); manufacturing (11%); and electricity, gas, steam and air-conditioning supply (0.4%).

Meanwhile, consumer lending rose by 0.9% in February, a turnaround from the 0.4% decline in January. Credit card loans rose by 8%, while motor vehicle (-5.2%) and salary-based loans (-8.4%) continued to decline.

Mr. Diokno said they are ready to adjust their monetary policy settings to fulfill their price and financial stability mandate if there is a need to ensure non-inflationary and sustainable growth.

“The BSP continues to see scope to safeguard the momentum of economic recovery amid increased uncertainty, even as indications of sustained improvement in credit activity allows the BSP to gradually unwind its pandemic-related interventions,” the central bank chief said.

The Monetary Board at its March 24 policy review held rates steady to maintain support for economic recovery, which it said has already gained traction. It said the geopolitical tensions in Europe as well as the ongoing pandemic continue to threaten the growth outlook.

ING’s Mr. Mapa said lending growth trend may moderate in the coming months as borrowing costs are expected to rise.

On the other hand, RCBC’s Mr. Ricafort said the further relaxation of pandemic restrictions could boost loan demand further in the months ahead.

Meanwhile, domestic liquidity rose by 8.5% for the second straight month in February, based on preliminary BSP data.

M3 — which is the broadest measure of money supply in an economy — picked up by 0.3% month on month.

Domestic claims rose quicker by 8.8% in February from 8.3% a month earlier “due to the faster expansion in net claims on the central government as well as the sustained improvement in bank lending to the private sector.”

Net claims on the central government grew faster by 21%, while claims on the private sector increased by 4.9%. Net foreign assets (NFA) rose 6.5%.

“The expansion in the BSP’s NFA position reflected the increase in the country’s level of gross international reserves relative to the same period a year ago. Likewise, the NFA of banks increased as banks’ foreign assets grew at a faster pace on account of higher interbank loans receivable and deposits maintained with nonresident banks,” the central bank said.

“Going forward, the BSP will ensure that domestic liquidity and credit conditions remain appropriate in sustaining the momentum of domestic economic recovery, to the extent provided by the outlook on inflation and growth,” it added. — Luz Wendy T. Noble