MANILA – Expectations for an economic recovery starting this year can boost demand for loans, Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno said.
In a briefing streamed through the central bank’s Facebook page on Thursday, Diokno said credit growth registered an expansion last August after eight consecutive months of decline.
“We’re cautiously optimistic that with the gradual easing of lockdown measures, combined with the implementation of localized lockdowns and the acceleration of the vaccination rollout, business activity will pick-up which will then spur credit growth in the country,” he said.
BSP data show that universal and commercial banks’ (U/KBs) lending activities, excluding placements in the central bank’s reverse repurchase (RRP) facility, grew by 1.3 percent year-on-year last August.
On a month-on-month basis, bank lending expanded by 1.1 percent last August, partly due to higher loans extended for production activities.
The BSP has been encouraging banks to increase their lending program to ensure that economic activities remain robust amidst the pandemic.
Its policy-making Monetary Board (MB) slashed the central bank’s key policy rates by a total of 200 basis points last year as part of this bid.
The BSP has also reduced banks’ reserve requirement ratio (RRR) by as much as 200 basis points, and allowed for a certain period lending to micro, small and medium enterprises (MSMEs) and the agri-agra sector as RRR compliance.
It also raised the single borrowers’ limit (SBL) of banks from 25 percent to 30 percent effective until Dec. 31, 2021 to allow banks to further increase their lending capacity.
Diokno said they are willing to extend this particular relief measure depending on their assessment of economic developments and financial conditions.
“The BSP is open to extending the 30 percent SBL to support the country’s recovery for as long as this will not pose a threat to the stability of the financial system,” he said.
Diokno attributed the decline in bank lending since the latter part of last year to both supply and demand factors.
“BSP’s relief measures, which include an increase in (the) single borrower’s limit, aim to address issues related to (the) supply side of lending. As economic conditions improve the BSP’s regulatory flexibilities will allow banks to lend more to productive enterprises and priority projects,” he said.
The central bank has adopted a separate SBL for project financing to ensure funding for projects and programs of the national government.
Project financing allows lenders to consider a certain project as a source of revenue for repayment and as security for exposure.
“The BSP adopted a separate SBL for product finance mainly to mobilize private sector funding towards projects that will support the country’s economic recovery efforts and nation building,” Diokno added. (PNA)