CREDIT EXTENDED by big banks continued to drop for the third consecutive month in February as both lenders and borrowers remained risk averse due to the ongoing coronavirus crisis that has also caused liquidity growth to slow.

Preliminary data from the Bangko Sentral ng Pilipinas (BSP) released on Monday showed outstanding loans by big banks declined by 4.5% to P8.979 trillion in March from P9.4 trillion a year earlier. This was worse than the 2.7% decline seen in February.

Inclusive of reverse repurchase agreements, bank lending decreased by 4.3% in March from the 2.3% drop in February.

The decline in lending shows the impact of the crisis, with debt servicing facing uncertainty, Asian Institute of Management (AIM) economist John Paolo R. Rivera said.

“Decline in lending for consecutive months despite low key rates may be indicative of low confidence in lending money at a time when the pandemic still poses economic uncertainty. Alternatively, there is still high probabilities of default,” Mr. Rivera said in a Viber message.

BSP data showed nonperforming loans in March surged 80% to P448.593 billion from a year earlier. This brought the bad loan ratio to 4.21% the highest since the 4.25% in August 2009.

A central bank survey showed banks expect to tighten their lending standards for both households and businesses in the second quarter of the year as they anticipate a more uncertain economic outlook, lower tolerance for risk, and the deterioration of borrowers’ profiles.

Credit disbursed for production activities fell by 3.2% in March following the 1.3% decline in February. Banks’ lending to major industries contracted, including those for wholesale and retail trade and repair of motor vehicles and motorcycles (-9.7%), manufacturing (-5.5%), and financial and insurance activities (-5.1%).

On the other hand, loans to other sectors picked up: electricity, gas, steam, and air-conditioning supply (2.9%), real estate activities (1.5%), and human health and social work activities (11.6%).

Banks’ consumer loans also fell by 9.9% in March, steeper than the 8.3% drop seen in the prior month. This, as vehicle (-10.7%) and salary-based (-1%) loans as well as credit card borrowings (-10.4%) all went down.

AIM’s Mr. Rivera said a continued slump in credit could affect recovery prospects for the economy.

“This will affect the economy particularly investment (and to some extent consumption) because not much money is circulating for transaction and investment purposes,” he said.

Mr. Rivera noted that proper policy guidance from the government, which could reassure banks and borrowers about the economy’s recovery prospects, will be crucial in boosting investor confidence and, in turn, could spur bank lending in the coming months.

“This is why timely announcements of important information such as quarantine policy, arrivals of vaccine, changes in economic policies are important so stakeholders can plan ahead,” he said.

March also saw M3 — the broadest measure of liquidity circulating in an economy — grew at a slower pace of 8.3% against the 9.4% expansion in February, the central bank said in a separate statement on Monday.

Domestic claims grew 5.6% in March, a tad slower than the 5.7% in February, which the BSP said was mainly due to the “modest expansion in net claims on the central government, even as bank lending to the private sector remained weak.”

Net claims on the central government grew by 47.4% in March from 46.5% in February on sustained state borrowings.

Meanwhile, the central bank’s net foreign assets (NFA) expanded by 18.1% in March, slower than the 21.8% pace in February.

“The expansion in the BSP’s NFA position reflected the increase in the country’s level of gross international reserves relative to the same period a year ago,” the BSP said.

On the other hand, the NFA of banks rose at a slower pace of 25.9% in the month from 38.1% in February as their foreign liabilities continued to decline due to lower bills payables.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said the slower liquidity growth in March reflected the impact of the lockdown late that month.

He, however, noted that money supply conditions continued to show “excess peso liquidity in the financial system amid various liquidity infusion measures.”

BSP Governor Benjamin E. Diokno has said they have infused over P2 trillion in liquidity into the financial system since the onset of the pandemic, equivalent to about 11% of the country’s economic output.

“The BSP shall continue to ensure that the overall stance of monetary policy remains in line with the BSP’s price and financial stability objectives, while providing support to the National Government’s efforts to combat the impact of the health crisis on the economy,” the central bank said.

The BSP will revisit its policy settings on May 12, Wednesday.

A BusinessWorld poll held last week showed 15 out of 17 economists expect the Monetary Board to keep benchmark interest rates at their current record lows to support the economy’s recovery alongside the government’s fiscal interventions. — L.W.T. Noble