Money supply, bank lending slower in April

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THE amount of money circulating in the financial system (M3), as well as bank lending, grew by double-digit rates in April from a year earlier, but moderated from March, as domestic claims and lending to productive sectors slowed, the central bank said.

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Data released by the Bangko Sentral ng Pilipinas (BSP) on Wednesday showed that domestic liquidity, or M3, rose at a slightly slower pace of 11.2 percent to P9.52 trillion in April from a revised 11.6 percent in March. Accounting for seasonal adjustments, M3 grew by 1.1 percent month-on-month.

“Demand for credit remains the principal driver of money supply growth,” the central bank said in a statement.

“The growth in M3 remains in line with the BSP’s prevailing outlook for inflation and economic activity,” it added.

Domestic claims—the sum of net claims on central government and claims on other sectors—rose by 13.8 percent year-on-year, but were down from the revised 16.4 percent in March.

The bulk of bank loans went to real estate; manufacturing; electricity, gas, steam and air-conditioning supply; wholesale and retail trade and repair of motor vehicles and motorcycles; and information and communication.

Lending to the public sector climbed 4.3 percent, “as a result of increased borrowings by the national government,” the central bank said.

Net foreign assets in peso terms grew by 3.6 percent, compared with a revised 6.8 percent in March, the central bank said.

The central bank’s net foreign asset position continued to expand as a result of robust foreign exchange inflows, mainly from overseas Filipinos’ remittances and business process outsourcing receipts.

The net foreign assets of banks expanded as foreign assets grew faster on higher interbank loans and investments in marketable debt securities, the central bank said.

Gov’t spending

“Interest rates and yields were trending higher in April, which we believe was a result of the tightening liquidity condition and still reasonable loan growth,” said ING Bank Manila senior economist Joey Cuyegkeng.

Liquidity growth should improve once fiscal spending accelerates and government funds circulate around the economy, he said.

Latest data from the Department of Budget and Management (DBM) showed cumulative disbursements as of end-April 2017 reached P798.4 billion, up P15.4 billion or 2.0 percent year-on-year.

“The chance for an improvement in fiscal performance is high as government projects move into actual delivery and construction and payments are made,” Cuyegkeng noted.

“Improvement in fiscal spending also generates positive sentiment that government’s grand infrastructure spending plans are likely to be implemented and support economic activity,” he added.

In an assessment report, the DBM said the remaining program balance for the rest of the year amounts to P631.7 billion or less than a quintile of the P3.35 trillion obligation for 2017.

The department said disbursements are expected to normalize in the coming months after the moderate outturns early this year partly because of base effects in the absence of election spending—unlike in early 2016 that benefited from campaign funds in the run-up to the May elections.

Moderate lending

Bank lending went up by 19.2 percent in April, from 20.2 percent in March, on the back of slower growth in loans for production activities.

Lending for production activities, which accounted for 88.7 percent of the total loan portfolio, grew by 18.4 percent, a slight slowdown from 18.9 percent in February.

“Bank lending to other sectors also increased during the month,” the central bank said.

Loans for household consumption grew at a slightly slower pace of 24.3 percent, from the revised 24.5 percent. It was driven primarily by credit card loans and salary-based general-purpose loans.

The BSP said it would continue to ensure that the expansion in domestic credit and liquidity conditions proceed in line with overall economic growth while remaining consistent with the BSP’s price and financial stability objectives.

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