Money supply, lending growth eases

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Growth of bank loans for production activities steadied at 18.5% in December 2017 from November. -- BW FILE PHOTO

By Melissa Luz T. Lopez
Senior Reporter

GROWTH of money supply slowed in December as the increase of bank lending eased and as the government issued retail bonds, the central bank reported yesterday.

At the same time, year-on-year growth of bank loans for production activities — accounting for more than 88% of the total — steadied in December from the preceding month, while lending for household consumption slowed.

Domestic liquidity, as measured by M3 which is the broadest indicator of money in an economy, expanded by 11.9% to P10.6 trillion last month, the Bangko Sentral ng Pilipinas (BSP) said in a statement.

The rate eased from the 14% climb recorded in November, and is the slowest since an 11.5% increase in May 2017. Month on month, liquidity actually slipped by 0.7%.

Funds drawn from domestic sources went up by 13.4% in December, slowing from the preceding month’s 14.7% pace.

This was largely due to a slower pickup in lending to the private sector at 15.7%, coming from a 16% increase.

The government’s issuance of P255.4 billion in retail Treasury bonds also ate into money supply at end-2017, as the state placed these fresh funds as deposits under the BSP. Amounts drawn from these five-year papers will pre-fund the spending needs of the current administration in 2018 as it takes on more big-ticket infrastructure projects.

As a result, net claims on the central government grew by a mere 2.2%, coming from November’s 10.2% pace.

Meanwhile, net foreign assets computed in peso terms grew by a faster 2.3% from 1.9%, reflecting increased dollar inflows from higher cash remittances from overseas Filipino workers, outsourcing receipts and bigger foreign portfolio investments, the BSP said.

Foreign assets held by banks expanded at a slower pace due to lower interbank lending and deposits.

December also marked the third straight month of softer growth in bank lending, even as it remained at double-digit level.

Credit growth clocked 19% in December, slower than the upward-revised 19.3% pace in November. That was the slowest increase since May 2017’s 18.7%.

Computed to include reverse repurchase agreements held by banks, total lending picked up by 18.1%, a tad slower than the 18.4% clocked in November.

Roughly 88.9% of bank credit went to production, growing by 18.5% — keeping November’s pace.

Loans extended to the electricity, gas, steam and air-conditioning supply sector surged by 25.4% to post the biggest increase during the month.

This was followed by increases in credit to wholesale and retail trade, repair of motor vehicles and motorcycles (20.1%); real estate (19.3%); as well as financial and insurance activities (16.8%).

Manufacturing also saw its loans from banks pick up by 11.7%, according to latest available central bank data.

Meanwhile, loans extended to administrative and support services as well as to the agricultural sector dropped by 30.4% and 13.7%, respectively.

Consumer lending also eased further to 17.2% in December, coming from a 20.6% climb a month before. This came as the grant of salary-based and car loans decelerated, despite bigger credit card and other household loans.

The central bank keeps a close watch on liquidity and bank lending dynamics to ensure price and financial stability.

The International Monetary Fund as well as some economists have flagged overheating risks for the Philippine economy amid sustained double-digit expansion in bank credit.

However, central bank officials said such fears are overdone, as the robust lending simply reflects increased domestic activity.

The Philippine economy grew by 6.7% in 2017, keeping it one of the fastest-growing in Asia.

“I think both domestic liquidity and bank lending growth have remained strong despite a slowdown in December. I do not think the economy is overheating since inflation has remained steady and manageable in December,” Security Bank Corp. economist Angelo B. Taningco said via e-mail when sought for comment.

“As there’s still enough domestic liquidity with inflation expected to drift towards the upper end of the government’s inflation target range, an RRR (reserve requirement ratio) cut is unlikely to be made in the near term.”

He is referring to the central bank’s plan to trim the 20% reserve standard imposed on big lenders, which is among the highest in the world.

BSP Governor Nestor A. Espenilla, Jr. said earlier this week that there is no need for such fresh stimulus from the regulator for now since the financial system is awash with cash.

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