Robust household loans failed to lift credit growth

MANILA, Philippines — Strong lending for household consumption due to easing interest rates failed to translate to faster credit growth as the increase in loan disbursements remained steady at 10.5 percent in September, according to Bangko Sentral ng Pilipinas (BSP).

BSP Governor Benjamin Diokno said loans for household consumption jumped by 26.2 percent to P791.62 billion in September from P627.32 billion in the same month last year.

Diokno attributed the strong growth to the faster increase in motor vehicle, credit card and salary-based general purpose consumption loans.

Data showed credit card loans surged by 27.2 percent to P334.7 billion from P263.11 billion, while auto loans zoomed by 29.5 percent to P366.16 billion.

The BSP has so far slashed interest rates by 75 basis points due to easing inflation as well as slower than expected gross domestic product (GDP) growth in the first half of the year.

Inflation averaged 2.8 percent in the first nine months after easing to a 41-month low of 0.9 percent in September from 1.7 percent in August.

The easing partly reversed a tightening cycle that saw interest rates rise by 175 basis points last year as inflation accelerated to 5.2 percent from 2.9 percent in 2017 and exceeded the BSP’s two to four percent inflation target due to elevated oil and food prices as well as weak peso.

Diokno said credit growth in September remained at 10.5 percent to P8.78 trillion from P7.95 trillion in the same month last year.

He said loans extended by big banks for production activities remained unchanged at nine percent to P7.68 trillion from P7.05 trillion, an accounting for 87.4 percent of the total portfolio.

The BSP chief said the growth in lending to the real estate sector recovered to 18.3 percent to P1.57 trillion as of end-September and accounted for 18 percent of the total loan disbursements by big banks.

Likewise, the increase in disbursements to the wholesale and retail trade as well as repair of motor vehicles and motorcycles also bounced back to 4.8 percent to P1.14 trillion for a share of 13 percent.

However, loan releases to the manufacturing sector contracted by 0.4 percent to P1.04 trillion in September from P1.05 trillion in the same month last year, while disbursements for accommodation and food services activities also contracted by 1.3 percent to P144 billion from P145.9 billion.

Likewise, the increase in lending to the electricity, gas, steam and airconditioning supply further eased to 9.2 percent with P978.55 billion.

Apart from the rate cuts, the BSP’s Monetary Board has also lowered the reserve requirement for big- and mid-sized banks by 400 basis points and for small banks by 200 basis points for same banks to free up much needed funds to accelerate credit growth and boost economic activity.

The BSP also reported a faster 7.7 percent rise in money supply to P12.04 trillion in end September from P11.18 trillion in end September last year.

 “The BSP will continue to monitor domestic liquidity dynamics to ensure that overall monetary conditions remain in line with maintaining the BSP’s price and financial stability,” Diokno said.

ING Bank Manila senior economist Nicholas Mapa said commercial bank lending continued to grow but was largely unmoved by BSP’s recent rate cuts and adjustments to the RRR due to the reluctance on the part of corporates to take on hefty loans as they wait for rates to “hit rock bottom.”