Bank lending growth continued to slow in July, the central bank said. — PHILIPPINE STAR/MICHAEL VARCAS

BANGKO SENTRAL ng Pilipinas (BSP) Governor Benjamin E. Diokno expects credit growth to pick up by yearend, as consumer and business confidence is restored with easing lockdown measures over the next few months.

In an interview with ABS-CBN News Channel on Monday, Mr. Diokno said the slower loan growth seen in July is “understandable” considering the economy is still dealing with a health crisis.

“We are slowly opening up and I think we are confident that consumers will start buying over the next few months. Also the producers, as they ramp up their production capacity, they might need more money for these capital or maybe expand their plans,” the BSP chief said.

Preliminary data released by the BSP showed bank lending growth stood at 6.7% year on year in July, the slowest pace of expansion since May 2010 when it rose by 5%.

“If you’re into manufacturing and you have excess capacity, there is no need for you to go to the bank and borrow, right? And so because of the pandemic and the lockdown, there’s not much production but it’s picking up…. The same thing with the consumers…. The consumers now prefer things that are really essential. They don’t have demand for luxury goods. And so there is also maybe no need for them to use their credit card for example, which is unsecured consumer loan,” Mr. Diokno said.

Mr. Diokno said banks are also still in the process of reviewing their loan portfolio.

“There are some winners and losers in this pandemic. And so, (lenders) are at this time trying to allocate funds. Some of them are providing for provisioning. Maybe some soured loans going forward and things like that. Everybody’s now in an adjustment mode. The slowdown in lending is understandable,” he said.

The banking industry’s nonperforming loan (NPL) ratio stood at 2.53% as of end-June, higher than the 2.43% in May and the 2.1% logged a year ago, BSP data showed. With this, lenders have increased provisions for credit losses by 48.5% year on year to P300.3 billion in June.

The BSP expects NPL ratio of the banking industry to rise to around 4.6% by end-December 2020 due to the crisis.

Amid record-low interest rates, analysts said consumer and business confidence have been battered by the pandemic which will continue to affect bank lending growth.

“Despite the relatively low cost of borrowing, it’s pretty hard to attract investors because of the unstable business environment. Investors just like consumers lose trust in the economy,” Colegio de San Juan de Letran Graduate School Dean Emmanuel J. Lopez said in a text message.

Banks are thinking twice about issuing loans, which have affected cash flows of consumers and businesses, according to Ateneo de Manila University economist Alvin P. Ang.

“Banks need to make money. If they do not have confidence that borrowers can pay, they will not lend,” he said in a text message.

The central bank has already slashed key rates by 175 basis points this year to support the economy amid the impact of the pandemic. This has brought down the overnight reverse repurchase, lending, and deposit facilities to record lows of 2.25%, 2.75%, and 1.75%, respectively. — Luz Wendy T. Noble