LIQUIDITY GROWTH eased further in October as credit expansion slumped to its slowest in nearly 14 years amid continued cautiousness among banks and consumers due to the ongoing coronavirus pandemic.

Money supply or M3 — considered to be the broadest gauge of liquidity in an economy — expanded by 11.8% in October, easing from the downward-revised 12.2% growth the prior month, Bangko Sentral ng Pilipinas (BSP) data released Thursday showed. M3 growth has been slowing for five consecutive months since June’s 14.9%.

For that month, growth in domestic claims eased to 7.9% from the 8.1% pace in September.

Net claims on the central government picked up by 46%, only a tad faster than the 45.9% seen in the previous month.
Meanwhile, claims on the private sector went up by 1.7% in October, picking up slightly from the 1.4% pace previously.

Net foreign assets in October also expanded by 23.3%, up from the 20.5% growth in September.

“The expansion in the BSP’s net foreign assets position reflected the increase in the country’s gross international reserves,” the central bank said.

The country’s reserves reached an all-time high of $103.814 billion as of end-October, already beyond the $100-billion projection of the BSP for this year.

Meanwhile, the growth of net foreign assets held by other depository corporations including banks was at 74.9%, slower than September’s 102.3%, amid lower loans and investments in marketable securities.

“Going forward, the BSP will remain vigilant in monitoring domestic liquidity and credit dynamics. The overall stance of monetary policy continues to be accommodative, reflecting the BSP’s preparedness to deploy necessary measures to ensure that liquidity and credit remain adequate amid the ongoing COVID-19 health crisis,” the central bank said.

“For the coming months, M3 growth could still slow down as the siphoning of excess liquidity through the weekly BSP term deposit facility auctions and the weekly BSP securities auctions would remain relatively larger compared to recent months,” Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said on Friday.

Mr. Ricafort said factors that could meanwhile boost liquidity growth would be a possible reduction in banks’ reserve requirement ratios as well as fund-raising activities by both the government as well as private businesses.

BANK LENDING SLOWS

Meanwhile, bank lending growth hit a 13-year trough as lenders continued to impose tighter credit standards and as borrowers’ confidence remained tepid despite record low benchmark interest rates.

Outstanding loans extended by universal and commercial banks rose 1.9% year on year in October, easing from the 2.6% pace in September, BSP data released separately on Thursday showed. This matched the pace logged in September 2006.
“The overall slowdown in bank lending growth reflects the combined effects of muted business confidence and banks’ stricter loan standards attributed mainly to continued disruptions in business operations,” the central bank said.

Inclusive of reverse repurchase agreements, credit growth eased to 2.2% from the preceding month’s 2.7%.

Loans for production activities, which made up 87.3% of total outstanding credit, grew 2% in October, slower than the 2.3% in September. This, as outstanding loans to key industries such as manufacturing and wholesale and retail trade and repair of motor vehicles and motorcycles declined by 3.6% and 4.3%, respectively.

Meanwhile, sectors that saw increased credit were real estate (6.8%); electricity, gas, steam, and air conditioning supply (four percent); human health and social work activities (45.6%); information and communication (7.5%); and transportation and storage (8.9%).

On the other hand, BSP data showed lending to households grew by 8% in October, easing from September’s 9.8%, amid a slowdown in credit card, motor vehicle and salary-based general purpose consumption loans.

“The stance of monetary policy of the BSP remains accommodative given the benign inflation outlook and stable inflation expectations. The recent additional easing will serve to complement fiscal measures in supporting domestic demand, with targeted fiscal spending and government health initiatives in place to counteract risk aversion and weak credit demand,” the BSP said.

“At the same time, the BSP will remain vigilant in monitoring domestic liquidity and credit dynamics and reassures the public of its readiness to deploy necessary measures to ensure that liquidity and credit remain adequate amid the ongoing COVID-19 health crisis,” it added.

The slowdown in bank lending comes even as the BSP already cut rates by a total of 200 basis points (bp) this year after its 25-bp reduction last month.

“Numbers seem to indicate that fostering a low policy rate environment is not a complete answer to help an economy recover,” UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said in an email.

“What will be critical for banks and financial institutions to lend would be institutional support to help address their challenges in expanded credit and lending,” he said, noting the proposed Senate Bill No. 1849 or FIST (Financial Institutions Strategic Transfer Act) Bill will soothe banks’ worries over non-performing loans.

The proposed measure, which has been certified urgent by President Rodrigo R. Duterte and is pending in Congress, will mandate the creation of FIST corporations that will be allowed to acquire non-performing assets of lenders.

“This proposal will help ease financial institutions from souring loans and transition to more lending activity in the near term,” Mr. Asuncion said. — Luz Wendy T. Noble

THE BANGKO SENTRAL ng Pilipinas (BSP) fully awarded its offer of short-term securities on Friday on the back of strong demand.

The BSP raised P60 billion as planned from its auction of 27-day bills as the offer was nearly twice oversubscribed, with bids hitting P117.1 billion. This was above the P112.2 billion seen on Nov. 27.

The central bank has made full awards of its offer of securities for the 12th straight week since its maiden auction in September.

The short-term securities are among the central bank’s tools to mop up excess liquidity in the financial system and better guide short-term interest rates.

Yields on the bills ranged from 1.69% to 1.71%, a slightly lower margin than the 1.6999% to 1.725% band logged in the prior auction. With this, the average rate for the bills settled at 1.6985%, down by 0.68 basis point from 1.7053% logged in the previous offering.

“The slight decline in the auction yield defied the latest spike in inflation that is expected to be transitory,” Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a text message.

Headline inflation stood at 3.3% in November, quicker than the 2.5% in October as well as the 1.35% last year and beyond the 2.4% to 3.2% forecast range of the central bank for the month.

The November pace is also the fastest rise in the consumer price index since the 3.8% reading in February 2019 and matched the 3.3% in March last year.

Year to date, inflation settled at 2.5%, still within the BSP’s 2-4% target and the 2.4%-2.6% projection of the Development Budget Coordination Committee for 2020.

The BSP sees inflation averaging at 2.4% this year. — LWTN

THE BANGKO SENTRAL ng Pilipinas (BSP) has released the guidelines for establishing digital banks in the country, giving it a distinct classification to boost the sector’s delivery of financial services to consumers.

BSP Circular No. 1105 signed by BSP Governor Benjamin E. Diokno on Dec. 2 defines a digital bank as an institution that offers financial products and services through digital and electronic channels without physical branches.

“A digital bank shall be subject to the prudential requirements set out by the BSP including corporate governance and risk management, particularly on information technology and cyber security, outsourcing, consumer protection and anti-money laundering (AML) and combating the financing of terrorism (CFT), as provided under existing regulations,” the circular said.

Digital banks will be another classification alongside universal, commercial, thrift, rural, cooperative and Islamic banks.

Based on the guidelines, digital banks will be allowed to grant loans, accept savings, time deposits and foreign currency deposits, invest in securities, issue e-money products and credit cards, sell micro-insurance products, and buy and sell foreign exchange currencies, among others.

“The Monetary Board may limit the total number of digital banks that may be established taking into account the total number of applications received and the assessment of the overall banking situation,” it said.

Interested firms need to put up a minimum capital of P1 billion to establish a digital bank in the Philippines.

Stocks of foreign individuals or non-bank entities, Filipino individuals or local non-bank parties, and family
groups is limited at 40% of the voting stocks.

The BSP will also allow brick and mortar banks to convert to digital lenders.

“Said banks shall comply with the applicable requirements for a digital bank and submit an acceptable plan which shall address how the transition to a digital bank shall be managed,” the BSP said.

Traditional banks that want to become online lenders will be given three years to meet the P1-billion minimum capital and to implement transitory actions such as closures of branches and branch lite units.

Upon receiving notice of approval of conversion, a six month period will be given to such lenders to phase out their activities not associated with a digital-only bank and submit amended Articles of Incorporation and By-Laws duly registered with the Securities and Exchange Commission.

“The authority to establish a bank shall be automatically revoked if the bank is not organized and opened for business within one year from receipt by the organizers of the notice of Monetary Board approval of the application,” the BSP said. — L.W.T. Noble

THE PESO continued to strengthen against the greenback on Friday, supported by vaccine hopes and remittances from overseas Filipino workers (OFWs).

The local unit closed at P48.04 against the dollar on Friday, inching up from the P48.045 close on Thursday, data from the Bankers Association of the Philippines showed.

Week on week, the currency strengthened by two centavos from its P48.06 finish on Nov. 27.

The peso opened the session at P48.04 per dollar. Its intraday best was at P48.02 while its weakest showing was at P48.045 against the greenback.

Dollars traded climbed to $1.02 billion from the $693.8 million recorded on Thursday.

The peso’s continued strength was backed by improved sentiment on news of vaccine developments, said Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort.

“[There was] improved market risk appetite amid optimism on various COVID-19 (coronavirus disease 2019) vaccines,” Mr. Ricafort said in a text message.

Moderna on Thursday said it expects 125 million doses of its experimental vaccine will be within reach globally within the first three months of the upcoming year, Reuters reported.

Mr. Ricafort said the seasonal increase in remittances amid the holiday season also supported the peso.
Meanwhile, a trader attributed the peso’s strength to US developments.

“The peso continued to appreciate from the on-going US stimulus talks and expectations of weaker November US jobs reports,” the trader said in an email. — L.W.T. Noble with Reuters