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Liquidity, bank lending growth ease in August despite demand

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MONEY SUPPLY growth eased in August despite continued demand for credit, the Bangko Sentral ng Pilipinas (BSP) reported on Monday.

Domestic liquidity or M3, the broadest measure of money supply in an economy, grew 6.2% year-on-year to P11.9 trillion, slowing from the 6.7% growth print logged in July, latest central bank showed.

Month-on-month, money supply inched up by 0.3%.

“Demand for credit remained the principal driver of money supply growth,” the BSP said in a statement.

Net claims on the central government rose 2.1% year-on-year, a reversal of the 1.8% decline seen in July. Meanwhile, domestic claims, which were mainly supported by the sustained growth in credit to the private sector, climbed 6.2% in August, faster than the upward-revised 5.8% in July.

The central bank said loans for production activities continued to be driven by credit to key sectors such as real estate activities; financial and insurance activities; electricity, gas, steam and airconditioning supply; construction; and wholesale and retail trade, repair of motor vehicles and motorcycles.




Meanwhile, net foreign assets (NFA) in peso terms jumped 8.9% year-on-year in August, quickening from the 5.8% pace seen in July. The BSP said this was driven by foreign exchange inflows coming mainly from overseas Filipinos’ remittances and business process outsourcing receipts.

NFA held by banks also climbed on the back of the growth of their foreign assets as a result of higher loans and investments in marketable debt securities.

“The slower M3 growth came despite the cut in reserve requirements decided in May 2019 worth a total of about P210 billion infused into the financial system…as this may still reflect relatively slower loan growth amid the declining trend in interest rates, slower economic growth, and slower global economic growth/outlook largely brought about by the lingering US-China trade war,” Rizal Commercial Banking Corp. chief economist Michael L. Ricafort said in an email.

UnionBank of the Philippines, Inc. chief economist Ruben Carlo O. Asuncion said: “The easing of liquidity growth bodes well for the central bank’s recent accommodative monetary policy. Demand for credit remaining a major driver for money supply growth in August further emphasizes the need to prompt the expansion of money supply in the coming months and help support economic growth in the medium term.”

BANK LENDING GROWTH EASES
Bank lending also decelerated in August due to slower growth in loans for production activities, the BSP reported on Monday.

Outstanding loans of universal and commercial banks grew 10.5% year-on-year in August, slowing from the 11.1% pace logged in July. Inclusive of reverse repurchase agreements, bank lending grew 10% in August from 10.7% the preceding month.

Production loans comprised 87.4% or bulk of banks’ total lending but expanded at a slower pace of 9% in August from 9.8% the previous month.

Construction loans continued to log the highest increase at 39.2%, followed by real estate activities at 17.7%; financial and insurance activities at 16.3%; electricity, gas, steam and airconditioning supply at 11.2%; and wholesale and retail trade, repair of motor vehicles and motorcycles at 3.7%.

Lending to other sectors also increased in August, except for professional, scientific and technical activities, which declined 38.9%, and other community, social and personal activities, which dropped 35.9%.

Meanwhile, loans for household consumption grew 25.4% in August, better than the 23% pace seen in July, supported by faster growth in motor vehicle, credit card, and salary-based general purpose consumption loans.

“Going forward, the BSP will continue to ensure that the expansion in domestic credit and liquidity remains consistent with the BSP’s price and financial stability objectives,” the central bank said. — L.W.T. Noble

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