An economist said Thursday the slowdown in bank lending in September was a sign of fading investment momentum that will affect how the economy will recover from the impact of the global pandemic.
ING Bank Manila’s senior economist Nicholas Mapa was responding to the latest data from the Bangko Sentral ng Pilipinas showing that the growth of bank lending eased to 2.8 percent in September from 4.7 percent in August.
“The deceleration in bank lending reflects the current trends reported in the GDP figures with capital formation cratering as both firms and corporates hold back big ticket investments to wait out the storm. These trends are also mirrored in the import numbers, which show substantial falls for capital goods and durable equipment as investors turn gun shy on making big bets given the economic recession,” Mapa said in a report.
He said the government appeared “shy to spend in a big way” with government spending expected to trend lower to close out 2020.
“With investment momentum fading, the economy will be lacking its top two key sectors in the quarters to come, which does not bode well for growth prospects down the line,” Mapa said.
Mapa said despite the efforts of the BSP in rolling out a mix of conventional and unconventional easing measures to support the recovery (low interest rates, bond market presence and copious liquidity), bank lending failed to respond to the very aggressive bouts of easing.
“From here, we can only expect downward trends in lending across most sectors to fall, households into single digits soon and overall lending to edge closer to zero with the economy in pandemic,” he said.
“It looks as if for now, with the economic recovery uncertain, bank lending and overall investment activity will be on ice, no matter what BSP brings out of its proverbial deep toolkit,” he said.
Data from the BSP showed that the growth in outstanding loans of universal and commercial banks, net of reverse repurchase placements with the BSP, eased to 2.8 percent in September from 4.7 percent in August.
The BSP said that on a month-on-month seasonally-adjusted basis, outstanding universal and commercial bank loans, net of RRPs, decreased by 1 percent.
The BSP said the general decline in bank lending growth partly reflected banks’ reduced tolerance for risk, decline in loan demand due, in turn, to weak business and income prospects and observed shift by non-financial corporates to alternative sources of funds.
Loans for production activities, net of RRPs, grew by 2.4 percent in September from 4.1 percent in August as loans across most sectors decelerated during the month. Outstanding loans to key sectors also continued to contract, particularly in manufacturing (-2.6 percent) as well as wholesale and retail trade and repair of motor vehicles and motorcycles (-3.4 percent).
Meanwhile, the following sectors contributed to the overall growth in production loans: real estate activities (7.3 percent); information and communication (9.7 percent); electricity, gas, steam, and air conditioning supply (3.0 percent).
Loans to households expanded at a lower rate of 10.2 percent in September from 12.9 percent in August mainly due to the continued slowdown in credit card and motor vehicle loans during the month.
The economy contracted by 11.5 percent in the third quarter because of the prolonged impact of the pandemic. The figure, however, was an improvement from the deeper 16.5-percent contraction in the second quarter. This brought the GDP average in the first three quarters to -10 percent.