BANGKO SENTRAL ng Pilipinas (BSP) Governor Benjamin E. Diokno said lending may start improving soon as consumers become more optimistic about the country’s prospects despite the continuing coronavirus disease 2019 (COVID-19) crisis.

“There is a glimmer of hope, however. Consumer outlook is positive for the first quarter of 2021 and remains optimistic for the next 12 months,” Mr. Diokno said in a Tuesday forum organized by the European Chamber of Commerce of the Philippines, referring to the results of the fourth quarter Consumer Expectations Survey of the BSP.

Mr. Diokno also cited the Banking Sector Outlook for the second half of 2020 which showed that majority of respondent banks expect their loan portfolios to grow by 10-15% over the next two years, which, he said, is a “crucial element of the recovery process.”

“We are also careful in taking the next steps, particularly in unwinding COVID-19 regulatory relief measures, to limit the potential scarring effects of the pandemic. The unwinding shouldn’t be too early nor too late,” Mr. Diokno said.

Bank lending fell 2.4% in January, marking the second consecutive month of contraction, with the BSP citing weak demand for credit as banks remained risk averse.

Lending slumped despite the central bank’s liquidity boosting measures that injected about P2 trillion into the financial system, equivalent to about 10% of gross domestic product (GDP). This also came despite the 200 basis points in cuts to borrowing costs last year that brought the key policy rate to a record low of two percent.

Banks tightened their credit standards to guard against an expected bad loan pileup due to the economic downturn. As of end-January, the industry’s bad loan ratio stood at 3.7%, picking up from the 3.61% in December and the 2.16% a year earlier.

Prior to the pandemic, credit expansion was usually higher by seven to 10 percentage points than the GDP growth, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

“Thus, it is reasonable to expect double-digit growth in bank loans of around 10-15% once GDP growth improves to 5-6% in the coming years,” Mr. Ricafort said.

“Additional measures to reopen the economy would lead to pick up in economic activities as well as the demand for loans,” he added. — L.W.T. Noble