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Liquidity, lending growth hit multi-year lows in October

LIQUIDITY GROWTH eased further in October as credit expansion slumped to its slowest in nearly 14 years amid continued cautiousness among banks and consumers due to the ongoing coronavirus pandemic.

Money supply or M3 — considered to be the broadest gauge of liquidity in an economy — expanded by 11.8% in October, easing from the downward-revised 12.2% growth the prior month, Bangko Sentral ng Pilipinas (BSP) data released Thursday showed. M3 growth has been slowing for five consecutive months since June’s 14.9%.

For that month, growth in domestic claims eased to 7.9% from the 8.1% pace in September.

Net claims on the central government picked up by 46%, only a tad faster than the 45.9% seen in the previous month.
Meanwhile, claims on the private sector went up by 1.7% in October, picking up slightly from the 1.4% pace previously.

Net foreign assets in October also expanded by 23.3%, up from the 20.5% growth in September.

“The expansion in the BSP’s net foreign assets position reflected the increase in the country’s gross international reserves,” the central bank said.

The country’s reserves reached an all-time high of $103.814 billion as of end-October, already beyond the $100-billion projection of the BSP for this year.

Meanwhile, the growth of net foreign assets held by other depository corporations including banks was at 74.9%, slower than September’s 102.3%, amid lower loans and investments in marketable securities.

“Going forward, the BSP will remain vigilant in monitoring domestic liquidity and credit dynamics. The overall stance of monetary policy continues to be accommodative, reflecting the BSP’s preparedness to deploy necessary measures to ensure that liquidity and credit remain adequate amid the ongoing COVID-19 health crisis,” the central bank said.

“For the coming months, M3 growth could still slow down as the siphoning of excess liquidity through the weekly BSP term deposit facility auctions and the weekly BSP securities auctions would remain relatively larger compared to recent months,” Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said on Friday.

Mr. Ricafort said factors that could meanwhile boost liquidity growth would be a possible reduction in banks’ reserve requirement ratios as well as fund-raising activities by both the government as well as private businesses.


Meanwhile, bank lending growth hit a 13-year trough as lenders continued to impose tighter credit standards and as borrowers’ confidence remained tepid despite record low benchmark interest rates.

Outstanding loans extended by universal and commercial banks rose 1.9% year on year in October, easing from the 2.6% pace in September, BSP data released separately on Thursday showed. This matched the pace logged in September 2006.
“The overall slowdown in bank lending growth reflects the combined effects of muted business confidence and banks’ stricter loan standards attributed mainly to continued disruptions in business operations,” the central bank said.

Inclusive of reverse repurchase agreements, credit growth eased to 2.2% from the preceding month’s 2.7%.

Loans for production activities, which made up 87.3% of total outstanding credit, grew 2% in October, slower than the 2.3% in September. This, as outstanding loans to key industries such as manufacturing and wholesale and retail trade and repair of motor vehicles and motorcycles declined by 3.6% and 4.3%, respectively.

Meanwhile, sectors that saw increased credit were real estate (6.8%); electricity, gas, steam, and air conditioning supply (four percent); human health and social work activities (45.6%); information and communication (7.5%); and transportation and storage (8.9%).

On the other hand, BSP data showed lending to households grew by 8% in October, easing from September’s 9.8%, amid a slowdown in credit card, motor vehicle and salary-based general purpose consumption loans.

“The stance of monetary policy of the BSP remains accommodative given the benign inflation outlook and stable inflation expectations. The recent additional easing will serve to complement fiscal measures in supporting domestic demand, with targeted fiscal spending and government health initiatives in place to counteract risk aversion and weak credit demand,” the BSP said.

“At the same time, the BSP will remain vigilant in monitoring domestic liquidity and credit dynamics and reassures the public of its readiness to deploy necessary measures to ensure that liquidity and credit remain adequate amid the ongoing COVID-19 health crisis,” it added.

The slowdown in bank lending comes even as the BSP already cut rates by a total of 200 basis points (bp) this year after its 25-bp reduction last month.

“Numbers seem to indicate that fostering a low policy rate environment is not a complete answer to help an economy recover,” UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said in an email.

“What will be critical for banks and financial institutions to lend would be institutional support to help address their challenges in expanded credit and lending,” he said, noting the proposed Senate Bill No. 1849 or FIST (Financial Institutions Strategic Transfer Act) Bill will soothe banks’ worries over non-performing loans.

The proposed measure, which has been certified urgent by President Rodrigo R. Duterte and is pending in Congress, will mandate the creation of FIST corporations that will be allowed to acquire non-performing assets of lenders.

“This proposal will help ease financial institutions from souring loans and transition to more lending activity in the near term,” Mr. Asuncion said. — Luz Wendy T. Noble

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