Borrowing costs

Bank loans extend growth streak in July as borrowing costs remain low

MANILA, Philippines — Credit growth rose for the 12th straight month in July as it continues to benefit from lower borrowing costs due to pandemic-era rate cuts from the Bangko Sentral ng Pilipinas.

Excluding interbank loans, outstanding loans issued by major banks rose 12 percent year-on-year in July to reach 10.2 trillion pesos, the BSP reported on Wednesday. The increase was unchanged from the growth recorded in June.

Over one month, credit rose slightly by 0.6%.

That said, more money has flowed into the national economy. A separate BSP report found that M3, a measure of money supply, grew 7% year-on-year in July to reach 15.4 trillion pesos, although slower than the 7.2% annual growth recorded on July. last month.

“Bank lending continues to benefit from previous BSP easing. Growth momentum has solidified and provides expansion over the coming quarters. Bank lending is expected to remain expanding as the economy reopens and demand credit remains healthy,” said Nicholas Mapa, senior economist at ING Bank in Manila.

Credit growth is crucial for an economy that depends on consumption. When bank lending plummeted in 2020 after lenders tightened credit standards amid fears borrowers would be saddled with debt, the BSP cut interest rates to spur loan growth in an economy national in lack of consumption.

The move paid off, with credit returning to growth in August last year after 8 straight months of contraction. But with inflation spoiling economic growth by stifling consumption again, the BSP began its tightening cycle in May and has since reversed all the rate cuts it had made at the start of the health crisis.

The benchmark rate currently stands at 3.75% after the central bank raised it by a total of 175 basis points.

Seeking comment, Domini Velasquez, chief economist at China Banking Corp., said the domestic economy will be able to cushion the BSP’s aggressive rate hikes.

“Although the BSP has been more aggressive in raising its policy rates recently, we expect the economy to have sufficient momentum to absorb the monetary tightening,” she said in a Viber message.

Disaggregated, central bank data showed most of the growth came from lending to manufacturing activities, which rose 11.6% year-on-year in July. Within this segment, lending to real estate, manufacturing, and information and communication activities experienced double-digit growth.

Consumer credit continued to rise, rising 14.7% year on year in July.

Velasquez noted that bank lending will continue to improve given that it will take more than six to 12 months for recent rate hikes to seep into the economy.

“On the other hand, we believe that going forward, consumer lending should ease in an environment of high inflation and high interest rates. economic activities,” she added.