BANK lending in the country is expected to remain in the contraction territory up until the last three months of the year, an ING Bank paper said.
After the Bangko Sentral ng Pilipinas (BSP) released the country’s bank lending number since May, ING Bank said credit extended by banks will continue to contract in the coming months after “failing to bounce back sharply” despite aggressive easing by the central bank.
“We expect bank lending to remain in the red for the next few months but eventually revert to growth by the fourth quarter as base effects fade and economic activity improves,” ING Bank said.
Banks will continue to put on a “risk premium” on loans to account for the uncertainty in the economic landscape, ING Bank said.
However, lending will likely pick up towards the end of the year as monetary policy cuts start working their way into the economy, according to ING Bank.
Bank lending first collapsed into the contraction territory in December 2020 by 0.7 percent. May is the sixth consecutive month of bank lending contraction despite the aggressive efforts of the BSP to lower interest rates and boost liquidity conditions.
Earlier this week, the BSP reported that bank lending contracted at a slower pace in May, declining by 4 percent during the month. This is slower than the 5 percent contraction recorded in April.
“Despite bank lending crash landing and in the red for 6 months and counting, the May downturn was less severe than the 5 percent drop in April, suggesting that rate cuts by BSP in late 2020 are beginning to take hold,” ING Bank said.
“BSP indicates that policy moves tend to operate with a 6-month to 9-month lag and we could see the early signs of these accommodative moves feeding through to the economy,” ING Bank added.
In its statement on bank lending, the BSP reiterated its stance to keep the monetary policy settings accommodative to push economic activity and support the recovery in the country.
“The BSP shall sustain monetary policy support in order for the economic recovery to gain more traction. In ensuring a favorable financing environment, the BSP will remain vigilant against emerging risks to inflation and economic growth, consistent with its price and financial stability mandates,” the BSP said.