Bank lending at biggest contraction in 14 years

BANK lending in the country continued to contract in February this year, hitting its biggest contraction in more than 14 years.

The Bangko Sentral ng Pilipinas (BSP) reported on Wednesday that bank lending fell by 2.7 percent in February, contracting further from the 2.4 percent decline seen in the previous month.

Bank lending first collapsed into the contraction territory in December by 0.7 percent. February was the eleventh consecutive month that bank lending has slowed despite the aggressive efforts of the BSP to lower interest rates and boost liquidity conditions.

In comparison, the Philippines’s bank-lending growth rate was at 13.6 percent in March last year.

Bank lending also contracted in the midst of growing liquidity conditions in the country.

The BSP also reported that domestic liquidity rose by 9.4 percent to hit P14 trillion in February. This was faster than the 8.9 percent revised growth in January.

In an economic analysis, rizal

Commercial Banking Corp. (RCBC) economist Michael L. ricafort said the grim bank lending rate of the country largely reflects slower demand for loans consistent with slower economic conditions.

ricafort also said that for the coming months starting March, bank loans could further contract due to the tighter quarantine restrictions.

The economist added that the contraction in bank-loans growth could be partly attributed to less reliance on bank loans by some of the country’s biggest businesses or conglomerates. This is in view of their increased fund-raising activities in the capital markets, especially through the bond and equity markets, amid the continuous development of the country’s capital markets in recent years.

In mid-february, Diokno admitted that the weakness of business confidence in the face of the pandemic is limiting the potency of monetary policy to lift the economy from recession.

The BSP’S overnight reverse repurchase rate is now at an all-time low of 2 percent after BSP’S aggressive cuts to spur activity in the local economy in 2020. In total, the BSP cut its rates by 200 basis points last year.

“Any further monetary measures may continue to have a limited impact unless business and consumer confidence improves significantly,” the BSP Governor earlier said. “These limits to monetary policy underscore the need for a whole of government approach to address the impact of the pandemic.”

ricafort also said that new coronavirus strains compose another risk factor as it could potentially slow down the economic recovery prospects, which could also slow down any pick up in loan demand.