INTERNATIONAL credit watcher Moody’s Investor Service said the country’s credit growth is headed for a rebound this year, as the central bank’s decision to cut rates to record lows will pay off.
In an analysis published on Wednesday, Moody’s said it forecasts credit in the country to rebound to about 5-percent in 2021 and continue further to 15 percent in 2022.
Latest data from the Bangko Sentral ng Pilipinas (BSP) showed that bank lending continued to contract in May, albeit at a slower pace from April contraction. In particular, bank lending declined by 4 percent in May. This is slower than the 5 percent contraction recorded in the previous month.
Bank lending first fell into contraction territory in December 2020 by 0.7 percent. May is the sixth consecutive month of bank lending contraction despite BSP’s aggressive efforts to lower interest rates and boost liquidity conditions.
In comparison, the Philippines’s bank lending grew 13.6 percent before the onslaught of the global health crisis in March 2020.
Moody’s attributed this view to BSP maintaining its record-low policy rates and lowering banks’ reserve requirements to encourage lending.
“The Philippine banking system is mainly funded by customer deposits with minimal reliance on wholesale funding, which protects the banks’ funding profiles from the effects of excessive market volatility,” Moody’s said.
“BSP’s target to further cut the reserve requirement ratio [RRR] to a single digit by 2023 from the current level of 12 percent will further support the banking system’s liquidity amid uneven economic recovery,” it added.
The bank’s low-cost and stable current and savings accounts accounted for 69 percent of total funding as of year-end 2020.
The loan-to-deposit ratio (LDR) improved to 69 percent as of year-end 2020 from 76 percent as of year-end 2019 because of lower loans in 2020.
Moody’s also noted that while the system is highly concentrated at the top, with the top 3 banks accounting for 47 percent of system loans in 2020, there is robust competition in the industry with “no single bank dominating the market.”
The credit watcher forecasts the country to grow by 5.8 percent for this year, before rising further to 6.5 percent in 2022.