The central bank’s efforts to convince banks to release more funds for borrowers affected by the pandemic, particularly micro, small and medium-sized enterprises (MSMEs), finally paid off in August when bank lending declined. ‘a contraction to growth for the first time since December 2020.
Faster rollout of COVID-19 vaccines and the lifting of quarantine restrictions have encouraged more major banks to lend despite tight credit standards.
Loans rose 1.3% year-on-year in August and broke eight months of decline, according to the Bangko Sentral ng Pilipinas (BSP).
One of the reasons that loans have declined over the months is that both business and personal loan borrowers face severe banking requirements to take out loans. Some banks have unreasonable demands that borrowers simply waive.
The BSP used moral suasion to convince banks to lend more to businesses to help economic recovery. They implemented “swift, time-bound, and targeted” regulatory and operational measures to help banks cope with the pandemic, such as easing the single borrower limit and reducing bank weights. credit risk of loans to MSMEs.
Bank credit improved mainly due to the increase in loans to production activities which rose 3.1% in August against 0.8% the previous month. BSP said the expansion was driven by growth in lending to real estate businesses which grew 7.2% year-on-year.
Information and communication loans also increased by 20.3%; three percent manufacturing; professional, scientific and technical activities by 89.8%; and transportation and storage 9.5 percent.
The central bank noted that consumer lending to residents has remained low due to the continued decline in auto loans and credit cards. It contracted 8.1% in August against a drop of 8.2% in July.
BSP data also showed that outstanding loans to residents, net of RRPs, increased 2% in August after declining 0.1% in July, while outstanding loans to non-residents increased by 2% in August. declined at a lower rate of 16.6% after declining 17.4% in the previous period. month.
Bank deferrals during the pandemic also include phased recognition of the allowance for credit losses and counting loans to MSMEs as meeting the reserve requirement.
Based on the latest BSP survey of bank loan officers, lending standards have remained cautious due to “diminished risk tolerance” during the pandemic. There has also been a “deterioration in borrower profiles” in an uncertain economic environment leading to a reduction in the size of credit lines, tighter collateral requirements and loan covenants, as well as an increased use of rates. interest floors, said the BSP.
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