Bank Lending Slows Down in June

Preliminary data show that outstanding loans of universal and commercial banks, net of reverse repurchase (RRP) placements with the Bangko Sentral ng Pilipinas (BSP), expanded by 9.6 percent in June, slower than the 11.3-percent growth in May. On a month-on-month seasonally-adjusted basis, commercial bank loans net of RRPs decreased by 1.1 percent. The slowdown in bank lending reflects in part the weak domestic economic prospects and constrained economic activity following the imposition of quarantine measures to contain the COVID-19 outbreak.

Loans for production activities, net of RRPs, grew by 8.3 percent in June from 9.8 percent in the previous month. The continued growth in production loans was driven primarily by lending to the following sectors: real estate activities (16.8 percent); financial and insurance activities (10.6 percent); information and communication (23.7 percent); electricity, gas, steam and air conditioning supply (5.4 percent); and transportation and storage (11.0 percent). Bank lending to other sectors also increased during the month, except for mining and quarrying (-2.8 percent), professional, scientific, and technical services (-5.5 percent), and manufacturing (-0.7 percent).

Similarly, loans for consumption of households, still reeling from the partial mobility restrictions and weak consumer confidence, grew at a slower pace of 26.7 percent in June from 30.2 percent in May, following slowdown in credit card, motor vehicle, and salary-based general purpose consumption loans during the month.

The BSP continues to adopt measures to ensure the flow of credit to affected businesses and households, including a further reduction in the monetary policy rate as well as a cut in the reserve requirement ratios of thrift and rural/cooperative banks.

Looking ahead, credit activity is seen to stabilize and pick up in the coming months, as economic activity resumes with the gradual reopening of the economy. The BSP reassures the public of its commitment to deploy its full range of instruments to ensure that domestic liquidity and credit remain adequate amid significant disruptions to economic activity due to the ongoing health crisis.