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M3 growth eases on slow lending

Money supply logged its sixth straight month of slower growth in November as lending continued to ease amid the coronavirus pandemic.

M3 — considered as the broadest measure of liquidity in an economy — increased 10.5% year on year to P13.7 trillion in November, preliminary data from the Bangko Sentral ng Pilipinas (BSP) released late Wednesday showed.

The month’s growth print was slower than the 11.6% seen in October. This also marked the sixth consecutive month of easing liquidity growth since June’s 14.9%.

Month-on-month, money supply rose by 0.5%.

“Slower M3 growth in recent months may have partly reflected some of the recent slowdown in loan demand,” Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a note.

Growth in domestic claims eased to 6.7% in November from 8.07% the previous month as bank lending remained weak, the central bank said in a statement.

Net borrowings by the central government also slowed to 40.7% from 46.6%, while claims on the private sector eased to 0.8% in November from 1.7% in October.

Meanwhile, net foreign assets (NFA) in peso terms rose 22.9%, slower than its 23.3% growth in October.

“The expansion in the BSP’s NFA position reflected the increase in the country’s gross international reserves during the month,” the central bank said.

On the other hand, net foreign assets held by other depository corporations including banks grew by a quicker 75.8% in November from 74.8% the prior month.

“The overall stance of monetary policy remains accommodative. Going forward, the BSP will continue to be vigilant in monitoring domestic liquidity dynamics and stands ready to deploy further monetary measures as needed, in line with its commitment to support domestic economic activity amid the COVID-19 pandemic while maintaining price stability,” the BSP said.

Meanwhile, credit growth slowed to less than a percentage point in November, with banks remaining cautious about lending as the crisis stretched on.

Data released separately by the BSP on Wednesday showed outstanding loans disbursed by universal and commercial banks grew by 0.3% year on year to P8.978 billion in November from P8.950 billion.

This eased from the 1.8% growth in October and is the slowest pace since the 1.9% logged in September 2006.

Inclusive of reverse repurchase agreements, bank lending rose 0.4%, slower than the 2.1% the prior month.

“It’s (slower loan growth) due primarily to banks’ risk aversion. They’ve been very careful in order to preserve not only their liquidity, but also, [they are thinking] would they be able to face up any eventuality,” Victor A. Abola, an economist from the University of Asia and the Pacific, said in a virtual briefing on Thursday.

“It’s not a lack of demand [for loans]. Firms are willing to borrow. It’s just that they have to pass through more rigid screening by the banks,” he added.

Mr. Abola said bank lending could pick up once lenders see solid signs of recovery among businesses.

Borrowings for production activities, which made up 87.3% of total outstanding loans, inched up by 0.5% following a 2% growth in October. This was due to a decline in loans to key industries like  wholesale and retail trade and repair of motor vehicles and motorcycles (-6%) and manufacturing (-4.2%).

On the other hand, increases were seen in loans for real estate activities (5.2%); electricity, gas, steam, and air-conditioning supply (2.7%); human health and social work activities (45.3%); transportation and storage (8.1%); and information and communication (6.5%).

Consumer loans also grew at a slower rate of 7.1% in November from 7.9% the previous month. The central bank attributed this to a slowdown in credit card loans (17.9% from 18.7% in October) and the continued decline in motor vehicle loans (-3.3% from -1.3%).

“The BSP notes that its accommodative monetary policy stance, along with sustained fiscal initiatives to safeguard public welfare, should continue to support the economy’s gradual recovery in the coming months,” the central bank said in a statement.

Mr. Abola said with liquidity and lending growth continuing to ease, the central bank will likely “tend to be accommodative.”

“They had to stop because of the spike in inflation but as soon as the fourth-quarter [gross domestic product] figures come up, which will still be negative, there will be reason to ease up further,” he said, noting he expects another 25-basis-point (bp) cut in policy rates.

The BSP last year slashed benchmark interest rates by 200 bps to help support the economy. This brought the rates on its overnight reverse repurchase rate, lending, and deposit facilities to record lows of 2%, 2.5%, and 1.5%, respectively.

BSP Governor Benjamin E. Diokno has said they intend to keep rates low until the country resumes its annual growth trajectory of 6.5% to 7.5%. — L.W.T. Noble

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