Security Bank Corp., the country’s seventh-largest lender in terms of assets, expects both loan and liquidity growths to accelerate toward the end of the year as the government ramps up fiscal spending, especially on infrastructure projects.
The Bangko Sentral ng Pilipinas on Wednesday said money supply as measured by M3 expanded at a faster rate of 7.7 percent in September from 6.2 percent year-on-year. Bank lending rose 10.2 percent in the same month from 10 percent on year.
Dan Roces, economist of the Treasury Group of Security Bank, said in a report Friday the growth rates were observed after the period of the phased 200 basis points cuts in reserve requirement ratio from May to July 2019 as extra liquidity slowly found its way into the financial system.
He said the cuts released approximately P200 billion into the system and were expected in part to enable the private sector to help finance the infrastructure program by the government through loans.
“Loan growth levels nevertheless remained quite low showing that the extra liquidity still has not found its way into infrastructure financing by the end of the third quarter. However, we think that the slow rate in bank lending growth remain reasonable in the interim,” Roces said.
“We expect both loan growth and liquidity levels to accelerate towards year-end as government ramps up spending… ,” he said.
“… And with the pre-announced 100bps reduction to the RRR each for November and December, borrowing and money supply are projected to continue going up well into 2020 where we expect around 200 to 300 bps of further reductions to the reserve ratio and likely in a front-loading manner similar to the present policy,” he added.
ING Bank Manila senior economist Nicholas Mapa, meanwhile, sees a modest growth in bank lending in the months ahead despite the move of the Bangko Sentral to reduce the reserve requirement because banks reverted the unleashed liquidity to government coffers.
“So far, BSP has implemented 200 bps worth of RRR reductions with 200 bps worth more in the pipeline. Governor [Benjamin] Diokno shared that this initial 200 bps reduction, resulting in a fresh P200 billion in additional liquidity, has gone almost exclusively to the local GS [government securities] market with data corroborating this claim with trading volumes spiking right after each RRR infusion,” Mapa said in a report.
He said commercial bank lending growth rates continued to rise although lacking the pace most would have expected after the deluge of additional funds through the RRR reductions.
“In short, RRR infusions have done little so far to bolster actual real economic activity with funds diverted back to the Bureau of the Treasury [and eventually the BSP’s Treasury single account] or with the BSP’s overnight windows,” Mapa said.