Borrowing costs

Bank lending rises in January as borrowing costs remain low

Ramon Royandoyan –

February 28, 2022 | 3:29 p.m.

MANILA, Philippines — Bank lending started the year on a high note as it continued its nascent ascent, rekindling hopes that the country’s recovery from the pandemic could be sustained.

Excluding interbank loans, outstanding loans issued by major banks rose 8.5 percent year-on-year in January to reach 9.7 trillion pesos, the Bangko Sentral ng Pilipinas reported on Monday.

The increase was significantly higher than the 4.8% growth in December last year. Over one month, credit grew by 3%.

In turn, more money flowed into the national economy. A separate BSP report showed that M3, a measure of money supply, rose 9.8% year-on-year in January to reach 15.3 trillion pesos, an annual growth of 7.3% in December 2021. D month on month, M3 rose 2.8%.

This reinforced a positive narrative for the BSP, as the economy is now feeling the effects of its aggressive easing episode in 2020, which brought the policy rate down to a record low of 2%.

Seeking comment, Michael Enriquez, chief investment officer at Sun Life Investment Management and Trust Corp, expects banks to lead the way in economic growth.

“We expect banks to take the lead in the recovery story as we expect loan growth as well as non-performing loans to continue to decline,” he said in a message. Viber.

Central bank data showed much of the increase came from lending to manufacturing activities, which jumped 9.6% year-on-year in January. In this segment, loans to companies carrying out information and communication activities recorded the strongest annual growth at 31.4%.

Other credit segments also showed hope for recovery. Consumer loans finally landed in the green in January, posting a 0.1% growth in January that ended 14 months of decline.

Nicholas Mapa, senior economist at ING Bank in the Philippines, said the BSP’s rate cuts from 2020 continue to ripple through the economy, with lending “getting an additional boost from improving economic conditions”.

For Jun Neri, chief economist at the Bank of the Philippine Islands, the lower alert levels “should actually translate into faster loan growth, as more businesses will need more working capital and ‘a possible reconstruction of a reduced capacity’. That said, Neri believes “interest rates have been too low and need to be raised already without affecting loan growth.”

READ: Metro Manila, 38 more areas under loosest Alert Level 1 from March 1

Meanwhile, Mapa said a potential spike in inflation and sharp peso weakness could likely prompt the BSP to tighten by the second quarter, which could cap loan growth as early as the fourth quarter.

For now, BSP is reviewing economic conditions to determine the right timing for its pandemic exit strategy.

“Nevertheless, stronger signs of recovery in overall economic activity will allow PASB to plan carefully for the eventual normalization of its pandemic-related interventions when conditions warrant, consistent with its price and financial stability mandates,” he said. said the central bank.