October 15, 2021

As the economy improves, bank lending is expected to increase steadily

Governor Benjamin Diokno of the Bangko Sentral ng Pilipinas (BSP) believes that expectations of an economic rebound beginning this year would increase loan demand.

Diokno said loan growth increased in August after eight months of decrease at a briefing broadcast live on the central bank’s Facebook page on Thursday, October 7, 2021.

“We are cautiously hopeful that with the progressive relaxation of lockdown measures, as well as the deployment of limited lockdowns and the acceleration of the vaccine rollout, business activity will pick up, resulting in credit growth in the country,” he added.

According to BSP statistics, universal and commercial banks’ (U/KBs) lending operations increased by 1.3 percent year over year in August, excluding placements in the central bank’s reverse repurchase (RRP) facility.

Last August, bank lending increased by 1.1 percent month over month, owing in part to increased loans for production operations.

The BSP has been pushing banks to expand their lending programs in order to keep the economy humming in the face of the epidemic.

As part of this effort, the central bank’s policy-making Monetary Board (MB) cut the central bank’s main policy rates by a total of 200 basis points last year.

The BSP has also lowered banks’ reserve requirement ratios (RRRs) by up to 200 basis points and permitted for RRR compliance lending to micro, small, and medium-sized businesses (MSMEs) and the agri-agra sector for a limited time.

It also increased the single borrowers’ limit (SBL) for banks from 25% to 30% until December 31, 2021, allowing banks to expand their lending capacity further.

Diokno said that based on their evaluation of economic trends and financial circumstances, they are ready to prolong this specific relief package.

“The BSP is open to extending the 30% SBL to assist the country’s recovery as long as it does not jeopardize the financial system’s stability,” he added.

Both supply and demand issues, according to Diokno, have contributed to the decrease in bank lending since late last year.

“The BSP’s relief measures, which include a rise in the single borrower limit, are intended to alleviate supply-side lending problems. As the economy improves, the BSP’s regulatory flexibility will enable banks to lend more to productive businesses and priority projects,” he said.

To guarantee to fund for national government projects and programs, the central bank has established a separate SBL for project financing.

Lenders may use project finance to view a specific project as a source of income for repayment as well as a form of risk mitigation.

“The BSP established a distinct SBL for product financing primarily to collect private sector investment for projects that would assist the country’s economic recovery efforts and nation-building initiatives,” Diokno said.

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