Bank lending seen to soften this year

MANILA, Philippines — Credit growth is set to ease further this year amid slower economic expansion and the series of interest rate hikes by the Bangko Sentral ng Pilipinas (BSP) last year.

Robert Dan Roces, assistant vice president and chief economist at Security Bank Corp., said bank lending would continue to soften this year.

“Loan growth will likely continue easing for the year as higher interest rates persist and temper economic activity,” Roces said.

The BSP’s Monetary Board lifted rates by 175 basis points in five straight rate-setting meetings between May and November last year to prevent inflation from spiralling out of control.

Inflation accelerated to 5.2 percent last year from 2.9 percent in 2017, exceeding the central bank’s two to four percent target, due to elevated oil and food prices as well as a weak peso.

Easing inflation, however, has allowed the BSP to take a breather from its tightening cycle as it kept interest rates unchanged since December.

 Latest data from the BSP showed bank lending growth slowed down to 13.7 percent in February from 15.3 percent in January.

Loans disbursed by Philippine banks reached P8.2 trillion in February versus the P7.22 trillion released in February last year.

Loans for productive activities grew slower at 13.6 percent to P7.25 trillion in end-February, accounting for 88.4 percent of the total disbursements.

Real estate activities cornered the biggest share of 17 percent with P1.39 trillion, followed by wholesale and retail trade, repair of motor vehicles and motorcycles with 13.6 percent or P1.12 trillion, and manufacturing (13 percent or P1.06 trillion).

On the other hand, data showed lending to the household sector recovered and grew faster at 14.9 percent to P675.25 billion due to higher credit card loans.

However, Roces said funding needs for the government’s infrastructure program could still boost lending once the national budget is signed.

Roces added the growth in money supply or M3 also eased to 7.1 percent in February from 7.7 percent in January, the slowest since September 2012.

“Money supply growth is an important factor for both economic development and price stability; a growth in M3 is mildly inflationary since it injects liquidity into the system,” he said.

The BSP’s Monetary Board slashed the reserve requirement ratio (RRR) by 200 basis points last year releasing P190 billion in additional liquidity into the financial system to support the growing economy.

The Late BSP governor, Nestor Espenilla Jr. had  committed to lower the level of deposits banks are mandated to keep with the central bank to single digit level by 2023.

Roces said the central bank would be mindful of the timing of the cut in RRR to prevent inflation from acting up.

“BSP will remain cautious in timing the RRR cuts considering that it may be inflationary – one percent injects P95 billion to P100 billion into the money supply. Thus, it will consider closely the impact of the cuts versus inflation numbers to make sure that price growth persists within the target band,” he added.