CREDIT activity in the country finally crawled back to growth territory in August, after being in the contraction territory for eight months, the Bangko Sentral ng Pilipinas (BSP) reported on Thursday.

BSP Governor Benjamin Diokno reported that bank lending expanded by 1.3 percent in August following a 0.7-percent decline in July.

“This is the first reported expansion in outstanding loans after eight consecutive months of contractions amid improvements in sentiment brought about by the continued rollout of Covid-19 vaccines and the gradual easing of quarantine restrictions,” Diokno said.

Bank lending first collapsed into contraction territory in December 2020 by 0.7 percent as the restrictions brought about by the pandemic affected the local banking industry.

The contraction persisted amid the sustained all-time low monetary policy rate in place.

In comparison, the Philippines’s bank lending grew 13.6 percent before the onslaught of the global health crisis in March 2020.

“Together with the national government’s fiscal and health interventions, the BSP’s prevailing accommodative monetary policy stance should help boost domestic demand and market confidence in support of economic activity,” Diokno said.

Contributing to the improvement in the total bank credit in August was the increase in outstanding loans for production activities, which grew by 3.1 percent in August from 0.8 percent in the previous month.

The BSP said expansion was driven by the growth in loans for real-estate activities at 7.2 percent; information and communication at 20.3 percent; manufacturing at 3 percent; professional, scientific and technical activities at 89.8 percent; and transportation and storage at 9.5 percent.

However, the decrease in outstanding loans to other industries such as agriculture, forestry and fishing at 6.8 percent; wholesale and retail trade and repair of motor vehicles and motorcycles at 2 percent; and activities of households as employers, undifferentiated goods and services at 25.5 percent tempered the overall expansion in outstanding loans for production activities.

Household loans dip

Despite the positive development in loans for production activities, loans for Filipino households continued to fall during the month.

The BSP said consumer loans to residents remained subdued, contracting by 8.1 percent in August from an 8.2-percent decrease in July. This was largely due to the continued decline in motor vehicle and credit-card loans.

ING Bank economist Nicholas Mapa attributed the bank lending recovery to the cuts made by the BSP in monetary policy.

“Bank lending showed a pulse in August, 8 months after the last round of BSP policy rate reductions.  Given the nature of monetary policy, any action taken by the BSP will generally need a good 6 to 9 months before feeding through to the real economy,” Mapa said.

“The expected lag from BSP rate cuts has finally been able to manifest in bank lending numbers with the aggressive policy accommodation finally bearing fruit,” he added.

Meanwhile, domestic liquidity continued to expand during the month.

Preliminary data show that domestic liquidity (M3) expanded by 6.9 percent year-on-year to about P14.4 trillion in August 2021.

This was faster than the 5.9-percent growth posted in July.

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