The Bangko Sentral ng Pilipinas (BSP) said bank lending continue to contract for the seventh month in a row, it fell by two percent in June but it was an improvement from May’s four percent drop.

“(The) concerns over the spread of new coronavirus variants continued to temper market sentiment and the outlook for economic recovery,” said the BSP in a statement. Total outstanding loans amounted to P9.09 trillion in June from P9.28 trillion same time in 2020.

The financial system’s liquidity or money supply however grew to P14.4 trillion also in June, expanding by 6.4 percent year-on-year. In May, domestic liquidity (M3) grew by 4.7 percent. Month-on-month, seasonally-adjusted basis, M3 was up by one percent.

In a forum on Friday, BSP Governor Benjamin E. Diokno said that while liquidity remains ample, bank credit growth is weak. “Bank credit activity remains weak, as measures to address the still elevated number of COVID-19 cases constrained domestic economic activity and continued to dampen market sentiment,” he said.

The country’s big banks or the universal and commercial banks’ loans to residents, net of reverse repurchase placements with the BSP, dropped by 1.4 percent in June from 3.5 percent in May while non-residents’ loans decreased by 19.7 percent compared to 18.8 percent of the previous month.

Based on BSP data, outstanding productivity loans in June reached P8.02 trillion, down by 0.6 percent year-on-year. The outstanding loans to key industries such as the real estate, information/communication and transportation/storage sectors continue to decline but a slower rate compared to the previous month.

Consumer loans also continue to decrease by 8.6 percent to P818.96 billion in June. Motor vehicle loans fell by 14.8 percent to P329.09 billion while credit card loans dipped 2.5 percent to P400.11 billion. Consumer loans are still on the slump despite consumers’ optimism as indicated by a BSP survey, with regards to job availability, reopening of businesses and perception of more access to COVID-19 vaccines.

As for money supply, the BSP said domestic claims grew faster in June by 5.3 percent year-on-year versus 2.6 percent in May because of the higher net claims on the central government “even as bank lending to the private sector remained weak.” Net claims on the central government was up by 27.8 percent from 22.6 percent previously, with government’s sustained borrowings to fund its anti-pandemic response and for deficit financing.

The BSP’s net foreign assets (NFA), in the meantime, increased by 12.7 percent in June from 14.5 percent in May. “The expansion in the BSP’s NFA position reflected the increase in the country’s gross international reserves relative to the same period a year ago,” said the BSP.

Banks’ NFA grew at a slower pace as “banks’ foreign liabilities rose on account of higher bills payables,” said the BSP.

Diokno said Friday that based on high frequency indicators, the economy in recession is slowly on the mend – “but it would appear that the recovery is slower than previously anticipated” with threats of a resurgence due to COVID-19 variants and the necessity of another lockdown.

As such, he said the BSP “will maintain its accommodative stance for as long as necessary to support and sustain the economy’s recovery.” The BSP has kept the policy rate at its lowest rate possible of two percent since November last year.

He continue to emphasize the urgency of an accelerated vaccine rollout and government’s recovery package as crucial catalysts for a GDP growth recovery. But he also cautioned that recovery path will not be easy. “Emerging variants pose downside risks to the growth outlook,” he said.

Source: Manila Bulletin (