Bank loans expand 12% in June

MANILA, Philippines — Credit growth accelerated to the fastest pace in more than two years in June despite the series of interest rate hikes by the Bangko Sentral ng Pilipinas (BSP) to curb rising inflationary pressures.

Loans extended by big banks grew by 12 percent in June from 10.7 percent in May. This was the fastest since the 12.7-percent growth recorded in April 2020.

Loans disbursed by universal and big banks amounted to P10.19 trillion in end-June,   P1.09 trillion higher than the P9.1 trillion recorded in the same period last year.

“The sustained growth in credit will support the momentum of economic recovery amid the ongoing withdrawal of monetary accommodation,” the BSP said.

After keeping an accommodative monetary policy stance by keeping key policy rates at an all-time low of two percent, the BSP started its interest rate liftoff by delivering a 25-basis-point rate hike on May 19, the first in more than three years or since November 2018, amid soaring inflation.

This was followed by another 25 basis points last June 23 as the BSP continues to crack down on surging inflation.

During a surprise off-cycle rate-setting meeting last July 14, the BSP delivered a huge 75-basis-point rate hike, bringing the overnight reverse repurchase rate to 3.25 percent from an all-time low of two percent.

BSP Governor Felipe Medalla has already ruled out another huge 75-basis-point rate hike for the scheduled rate-setting meeting on Aug.18 and a surprise off-cycle rate-setting meeting.

After the US Federal Reserve delivered back-to-back 75-basis-point rate hikes in June and July, the BSP is prepared to utilize the full force of available measures to manage the spillover effects of external developments.

“In order to manage the spillover effects of such external developments, the BSP is prepared to utilize the full force of available measures in order to address the potential risks to Philippine inflation and inflation expectations arising from an overshooting or excessive depreciation of the Philippine peso,” Medalla said.

After slumping for eight straight months between December 2020 and July 2021 due to uncertainties brought about by the COVID-19 pandemic, bank lending has been increasing since August last year as the economy finally absorbed the 200-basis-point cuts in interest rates and lowering of reserve requirement ratio delivered by the BSP   as part of its COVID-19 pandemic response measures.

Michael Ricafort, chief economist at Rizal Commercial Banking Corp., said loan growth posted a positive year-on-year growth for the 11th consecutive month as the economy further reopened from strict COVID-19 quarantine and lockdown protocols.

The Philippines is expected to book a faster gross domestic product (GDP) growth in the second quarter after a stronger-than-expected 8.3-percent expansion in the first quarter.

“Universal and commercial bank loan growth again sustaining double-digit growth rate recently, at 12 percent, has become one of the bright spots in the Philippine economy and also fundamentally supports faster GDP growth, going forward,” Ricafort said.

Ricafort said credit growth continued to accelerate despite the policy rate hikes by the BSP.

Loans to production activities went up by 12 percent to P8.99 trillion in June this year from P8.02 trillion in the same period last year and accounted for 88.2 percent  of the total loans disbursement.

The real estate sector posted a strong 18-percent jump to P2.13 trillion and accounted for 20.9 percent of the total disbursements followed by the manufacturing sector with a 17.5-percent growth to P1.17 trillion for a share of 11.5 percent as well as wholesale and retail trade, repair of motor vehicles and motorcycles with an eight-percent increase to P1.15 trillion for a share of 11.3 percent.

Likewise, loans extended to the electricity, gas, steam and air-conditioning supply sector inched up by 5.2 percent to P1.09 trillion for a 10.8-percent share.

The BSP also reported a 10.6-percent increase in consumer loans to P903.81 billion for a share of 8.9 percent of the total loans. Credit card loans grew by 18.9 percent  to P475.94 billion, offsetting the 0.2-percent decline in auto loans to P327.05 billion.