Bank lending likely to pick up by 2nd half of 2021

Credit activity may pick up in the second half of the year, once lockdown restrictions are eased. — REUTERS

By Luz Wendy T. Noble, Reporter

SLUGGISH BANK LENDING is expected to continue in the next few months, with improvements likely seen by late 2021 if the pandemic-related restrictions are further eased in the Philippines, according to analysts from credit rating firms.

Despite the liquidity boost and record low policy rates, lending has been muted in recent months as banks tightened credit standards amid uncertainty over the health crisis.

“Credit demand is likely to remain weak in the second quarter as well and could pick up in the second half of 2021. Credit off-take will primarily depend on lifting of restrictions in Manila and National Capital Region,” S&P Global Ratings analyst Nikita Anand said in an e-mail to BusinessWorld.

Strict lockdown measures have been eased in NCR and adjacent provinces, which are now under a general community quarantine (GCQ) but “with heightened restrictions” until May 31. This as the number of reported coronavirus disease 2019 (COVID-19) cases has gone down.

Bank lending declined for the third straight month in February, despite the Bangko Sentral ng Pilipinas’ (BSP) measures to incentivize lending and to infuse liquidity worth P2 trillion to the financial system.

“If you look at the liquidity injection of the BSP in the past year, it has been instrumental in supporting market function. What we’ve seen is that much of this liquidity has been absorbed back into the various facilities of the BSP,” BSP Deputy Governor Francisco G. Dakila, Jr. said at the monetary policy briefing on Wednesday.

“Once the economy starts recovering due to the control of the spread of the virus and the relaxation of restrictions, then we can see that liquidity will not then be a factor constraining growth,” he added, assuring “liquidity is already there.”

Joyce Ong, an analyst at the Financial Institutions Group of Moody’s Investors Service, expects lending to remain sluggish in the next few months before picking up pace later in the year.

“Lending will likely remain muted in the next few months, as businesses halt expansion plans due to the ongoing social-distancing measures and a resurgence in infection rates,” Ms. Ong said in an e-mail.

“Banks will remain cautious in lending to SME (small and medium enterprises) and retail borrowers due to their elevated default risk, because these borrowers tend to have less cash buffers to withstand prolonged financial stress,” she added.

In February, loans for production activities fell by 3.2%. Borrowings from consumers also dropped 9.9%.

“In times of greater uncertainty, lag in the transmission of monetary policy can be expected to be longer. Therefore, the implication of that is that monetary stimulus will be applied on a longer time period than what would have been in more normal times,” Mr. Dakila said on Wednesday.

More business activities are expected to resume with NCR now under a more relaxed GCQ.

S&P’s Ms. Anand said this may spur bank lending moving forward.

“As the economic activity picks up, capital expenditure and working capital requirements from corporate sector should increase. Ramp up of key infrastructure projects could also provide an upside,” she said.

She, however, warned that recurring waves of COVID-19 infections and a slow vaccination rollout could continue to hinder economic and credit growth.

For her part, Ms. Ong said a resumption of some kind of “state of normalcy in the Philippines” in terms of both business and consumer activities could help drive a gradual recovery in lending by the end of the year.

The economy shrank for the fifth consecutive quarter by 4.2% in the January to March period. Household spending continued to decline by 4.8% while capital formation slid by 18.3%.