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By Luz Wendy T. Noble, Reporter

BANK LENDING marked its fifth straight month of expansion in December, as credit activity improved amid the further reopening of the economy.

Outstanding loans issued by universal and commercial banks increased by 4.6% year on year in December to P9.6 trillion, according to preliminary data released by the Bangko Sentral ng Pilipinas (BSP) on Monday.

Lending growth picked up from the 4% seen in November, and the fastest since the 4.7% in August 2020. 

“Credit activity continued to improve due to a more favorable economic outlook from businesses and households amid the sustained rollout of COVID-19 (coronavirus disease 2019) vaccines and the easing of community restrictions during the month,” BSP Governor Benjamin E. Diokno said in a statement.

Metro Manila and most parts of the country were under a more relaxed Alert Level 2 in December, as the number of COVID-19 cases dwindled and the pace of vaccination improved.

Inclusive of reverse repurchase agreements, bank lending also rose by 4.6%. It went up by 0.4% month on month.

“Bank lending supported both consumption and capital formation, helping power the robust fourth-quarter gross domestic product (GDP) growth performance,” ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa said in an e-mail.

Household consumption, which makes up about 70% of the economy, increased by 7.5% year on year in the last three months of 2021. The investment component or capital formation climbed by 12.6%.

The economy accelerated by 7.7% year on year in the fourth quarter, bringing full-year gross domestic product (GDP) growth to 5.6%.

“Follow-through stimulus from the BSP’s 2020 rate cuts fed through to lending while the gradual reopening of the economy also spurred demand for credit,” Mr. Mapa said.

Despite the low interest rates, bank lending declined on an annual basis from December 2020 to July 2021 as borrowers and banks became risk averse during the pandemic.

In December, production loans increased by 5.8% year on year, faster than the 5.4% in the previous month. This was backed by the rise in lending for real estate activities (9.1%), information and communication (27.3%), manufacturing (9.4%), financial and insurance activities (9.9%), and transportation and storage (9.1%).

Consumer borrowings dropped by 5.7% in December, although less steep than the 7.1% contraction in November. Only credit card borrowings (4.7%) registered growth, while motor vehicle loans (-17.2%), and salary-based loans (-8.8%) continued to decline.

The Monetary Board will have its first policy review on Feb. 17.

Mr. Mapa said a possible rise in interest rates could affect lending growth.

“2022 could see bank lending’s recovery capped with global interest rates on the rise. An improving domestic economy coupled with a likely Fed rate hike cycle could mean interest rates will be on the uptrend this year,” he said.   

SLOWER M3 GROWTH
Meanwhile, domestic liquidity grew by 7.7% year on year to P14.747 trillion, the BSP said in a separate statement. This was slower growth than the 8.3% seen in November.

M3 — which is the broadest measure of money supply in an economy — picked up by 0.2% month on month in December.

Domestic claims rose by 8% in December, easing from the 8.1% rise in the prior month.

Net claims on the central government increased by 21.7%, easing from a 24% growth in November.

Meanwhile, growth in claims on the private sector quickened to 3.6% from 3% in the previous month.

Net foreign assets increased by 6.5% in December, slowing from the 8.8% expansion a month earlier.

“Looking ahead, the BSP will continue to monitor liquidity conditions closely in preserving adequate support to the domestic economic recovery, consistent with the BSP’s price and financial stability objectives,” Mr. Diokno said.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said M3 may continue to expand due to the excessive liquidity in the financial system.

The BSP has infused about P2.3 trillion in liquidity to the financial system amid the crisis. This is equivalent to about 12.5% of GDP.