Credit growth slows in Q2

Bank lending slowed in the second quarter as the economy came to a grinding halt due to the implementation of quarantine measures to slow the spread of COVID-19, according to the Bangko Sentral ng Pilipinas.

In a virtual press briefing, BSP Governor Benjamin Diokno said there has been a slowdown in credit growth in the second quarter despite the adequate liquidity in the financial system.

Diokno said there has been a tightening of bank lending standards as shown by the results of the latest Senior Bank Loan Officers’ Survey (SLOS).

“This is due to the less favorable economic outlook and to banks’ reduced tolerance for risk,” he said. Dioko, however, remains confident that credit growth may pick up in the coming months with the gradual opening of the economy.

According to the latest BSP data, credit growth slowed for the second straight month in May, rising by only 11.5 percent to P9.39 trillion from P8.44 trillion in the same period last year. This was slower than the 12.7 percent growth recorded in April.

“There is enough reason to expect bank lending to pick up in the coming months with the gradual reopening of the economy,” Diokno said.

Despite the slower credit growth, Diokno said Philippine banks remain on stable footing to weather the global health crisis.

“The banking system’s asset quality has remained steady, while capital adequacy ratios have stayed above prescribed standards. The banking system has also exhibited asset and deposit growth, allowing them to provide intermediation services during the lockdown,” Diokno said.

Lara Romina Ganapin, acting deputy director of the BSP’s Department of Economic Research, said results of the second quarter SLOS showed that most of the respondent banks tightened their overall credit standards for loans to both enterprises and households during the review period.

“This is the first time that the majority of respondent banks reported tighter credit standards following 44 consecutive quarters of broadly unchanged credit standards,” Ganapin said.

Consequently, the diffusion index approach likewise indicated a net tightening of overall credit standards through reduced credit line sizes, stricter collateral requirements and loan covenants, and increased use of interest rate floors for both loans to enterprises and households for the second straight quarter.

According to the survey, 69.4 percent of the respondent banks reported tighter overall credit standards for loans to enterprises across all borrower firm sizes, including top corporations, large middle-market enterprises, small and medium enterprises (SMEs), and microenterprises.

“Respondent banks attributed the tightening of credit standards largely to less favorable economic outlook, deterioration in the profiles of borrowers, and banks’ reduced tolerance for risk, among other factors,” Ganapin said.